Sale does not close Bawag scandal

The sale of Bawag PSK to an investor consortium led by Cerberus, the US private equity group, brings an apparent end to the travails of Austria’s fourth largest bank.

But the deal announced on Thursday, which saw Cerberus beat Lone Star and Bayersiche Landesbank of Germany with a €3.2bn ($4.2bn) bid, still leaves questions about Bawag’s future unanswered.

It troubles started in October last year, when three former Bawag executives approved a €350m loan to Philipp Bennett, then head of Refco, the US futures broker that subsequently collapsed. The bank had also extended a €75m loan to Refco itself.

The furore over the size and circumstances of the loans, approved shortly before Mr Bennett’s arrest, was soon overshadowed by revelations the bank had covered up years of losses incurred through derivatives trading in the Caribbean.

The news brought Bawag to the brink of collapse as customers withdrew deposits. Austria’s once powerful trade union federation, Bawag’s owner, found itself in a financial crisis and made the decision to sell.

Rudolf Hundstorfer, the federation’s chairman, on Friday said Cerberus’s commitment to retaining an “Austrian identity” at the bank had played a large part in its victory.

He pointed to Cerberus’s decision to bring in the Austrian Post Office, with which Bawag is closely associated, as a minority consortium member. Another factor was the late arrival of Hannes Androsch, a former Social Democrat finance minister, as head of a small group of Austrian business leaders joining the Cerberus bid.

How much of a stake each investor will take remains unclear. There have been suggestions the Post Office will have a 5-10 per cent stake while the Austrian businessmen will hold 5 per cent, with Mr Androsch expected to gain a seat on Bawag’s supervisory board.

Other stakeholders will include Generali, the Italian insurer, and Wüstenrot, the German mortgage bank, with both likely to take 5 per cent of the bank each. Cerberus, which is considering plans to float Bawag in a few years, is expected to retain the majority stake.

The unions may also have been swayed by Cerberus’s commitment not to break up the bank. Job guarantees may not have been explicit, but Cerberus’s growth plans probably went down well.

In spite of strong political factors behind the decision, price would probably have been the key factor for Ceberus’s victory.

The unions will receive €2.61bn, with the remainder going to recapitalise Bawag. That should be enough to cover the €2.1bn of commitments the unions have to Bawag, as well as other outstanding borrowings.

While the sale marks an important landmark for the bank’s recovery, the investigation into the causes of Bawag’s crisis and the matter of who was responsible for them will see the bank staying in the headlines.

The trial of nine former executives and their advisers should open early next year after months of preparation by Vienna public prosecutors.

Meanwhile, Helmut Els­ner, Bawag’s former chief executive, has so far eluded Austrian attempts to extradite him from France. Last week, Mr Elsner’s lawyers claimed he had to undergo “urgent” heart surgery.

But, however bright Bawag’s future, only when Mr Elsner faces the music may the full details of its murkier past be known.

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