It's been six months since
collapsed in an accounting fraud, and the shockwaves are still being felt 4,000 miles away from the brokerage's New York headquarters.
On Friday, Austria's Bank fuer Arbeit und Wirtschaft found itself the victim of escalating customer withdrawals, according to overseas press reports. Depositors were reportedly lining up outside branches all across Vienna, looking to pull their money from Austria's fourth-largest lender.
The panic follows days of revelations about Bawag's alleged deeper involvement with Refco, including claims that the lender aided and abetted fraud at once-dominant commodities and derivatives brokerage.
Customers' nerves were further frayed Friday after the president of Austria's Trade Union Federation, Bawag's owner, allegedly confirmed that some of the bank's financial ties to Refco went deeper than previously believed.
Bawag, which has 1.5 million retail customers and $55 billion in assets, said it was in no danger of collapse. Earlier in the week, the Austrian National Bank took steps to ensure Bawag would have ample cash on hand to avoid a crisis.
Bawag once owned a 10% equity stake in Refco. But lawyers for Refco's creditors filed a lawsuit this week claiming the bank had a secret deal that effectively gave it a much bigger stake in the brokerage.
The creditors contend the deal funneled $1.3 billion of the proceeds from Refco's $1.9 billion leveraged buyout in 2004 to Bawag. Nearly $676 million of that amount allegedly was transferred to Bawag through a now-defunct Delaware company called DF Capital, which was controlled by Refco's former CEO Phillip Bennett.
Bawag allegedly made a $254 loan to DF Capital that creditors say was used by Bennett as part of a scheme to conceal up to $750 million in trading losses rung up by Refco customers. Federal prosecutors charged Bennett with securities fraud, just days after the alleged debt-hiding scheme came to light last October.
Rudolf Hundstorfer, the trade union's president, confirmed at a press conference that the union had set up a Liechtenstein foundation, Desana Stiftung, which was the sole shareholder of DF Capital, according to
. Hundstorfer says Desana, through DF Capital, loaned money to Refco. The loans were guaranteed by an additional 27% equity stake in Refco, Hundstorfer says.
He says the trade union was not aware of the loans or the deals with Refco. Hundstorfer says the arrangement was approved by the union's former finance chief, who also was a former Bawag director.
first reported on the broad outlines of the DF Capital arrangement several weeks before the creditors' filed their lawsuit.
A federal bankruptcy court has temporarily frozen Bawag's assets in the U.S. in the wake of the allegations.
Bawag's initial response to the lawsuit was to ridicule it. But in recent days, bank officials have indicated they might be open to a settlement.