Preface to the
Annual Report for 2006
BAWAG P.S.K. had a very eventful 2006. There were lasting changes affecting both the bank itself and its shareholder structure. The Bank's difficulties were triggered by the discovery of losses suffered by the former BAWAG during the so-called Caribbean trans- actions between 1995 and 2000 and by subsequent legal action taken by creditors of insolvent US broker Refco. The results were a loss of confidence and sizeable withdrawals of customer deposits and, for a period, constraints in the international money and capital markets.
Directly after the announcement of the past losses, in April, BAWAG P.S.K.'s Supervisory Board was entirely recomposed and four Managing Board members were compelled to leave the Bank. The Bank's new Management voluntarily adopted the rules of the Corporate Governance Kodex (Austrian corporate governance code), fundamentally overhauled its risk policy and risk management procedures and installed a Managing Board member with central responsibility for risk control.
Help from the Republic of Austria (which, at the beginning of May 2006, agreed to issue a federal guarantee to stabilize BAWAG P.S.K.) and from the Austrian finance sector (which, under the overall control of the Austrian national bank, gave BAWAG P.S.K. capital support) did much to stabilize the situation. Another key step towards securing BAWAG P.S.K.'s future was the agreement of a global settlement with the creditors in the Refco insolvency case. It was reached in June and became legally effective in September 2006.
In the course of these events, the Österreichischer Gewerkschaftsbund (OeGB: Austrian Trade Union Federation) decided to sell the entirety of BAWAG P.S.K. The selling process, which began in the second quarter, attracted considerable interest, competition among the prospective acquirers being intense and a large and prestigious international group of bidders taking part. It ended with the signature of the Share Purchase Agreement on December 30, 2006.
The successful bidder was a consortium led by US private investment firm Cerberus, which included Austrian companies Generali-Versicherung (insurer), Bausparkasse Wüstenrot (building and loan) and a group of Austrian investors. It was agreed to hold further talks with Österreichische Post (the Austrian postal service) regarding a possible investment in BAWAG P.S.K.
This new, financially powerful and well-capitalized group of owners has given BAWAG P.S.K. excellent foundations for its successful future development. The inclusion of strategic partners in our shareholder structure has created a raft of attractive opportunities for cooperation. We will be analyzing and exploring these opportunities in the course of 2007.
Having crisis-managed a difficult 2006, BAWAG P.S.K. is now once again on the road to success. Since the very beginning of 2007, the Bank has been back in the market with new product launches. Based on its strengths and experience and in partnership with its new owners, BAWAG P.S.K. will be continuing to reinforce its position as a skilled Central European financial service provider.
We were able to complete some essential groundwork during 2006. Having finished implementing its new IT system, called Allegro, BAWAG P.S.K. now has Austria's most sophisticated core banking software. All BAWAG and post office branches are now directly connected into a network by a common system, allowing us to make even more efficient and effective use of our centrally managed bank distribution network, which is Austria's largest. I would like to thank all our customers for the trust they placed in us during the year under review. I also espe- cially thank our business associates for the help they gave us in strengthening and stabilizing the Bank. Not least, I would like to extend my thanks to all the employees of the BAWAG P.S.K. Group. During an extraordinary 2006, their enormous dedication enabled them to achieve a great deal under very difficult conditions.
We will continue to work hard to be worthy of the trust that has been placed in us, to remain an attractive provider of banking services for every Austrian and to continue to be a reliable partner and business associate.
Ewald Nowotny (CEO)
Chairman of the Managing Board