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More_speculation_in_regional_councils

More speculation in regional councils

The region of Velden in Carinthia is the latest named as having been involved in risky financial investments after losing close to 500,000 Euros of taxpayers money.

If correct it will mean Velden is the latest in a number of local government bodies that has tried to profit from speculative investments.

Now that the tide has turned and the losses became obvious, Velden wants to cancel the investment - which is why it has now become public.

The community currently negotiates with its bank about compensation to minimise its losses.

Carinthian local government representative and former Velden mayor Ferdinand Vouk (SP) said that risky financial endeavours like in Salzburg or Lower Austria did not happen in Carinthia in an interview with the state broadcaster ORF a few days ago.

However, recent discoveries reveal that the Carinthian community of Velden finalized a speculative trade exactly five years ago in Vouk's time as mayor.

A subsidiary of the community has finalized an interest hedge with a maturity of 10 years in 2007. Now, five years later, the accounting loss is estimated at 1 Million Euro while the interest income is only 510,000 Euro. The bottom line is about 490,000 Euro of projected losses which are lost in the gamble. Financial derivatives are very risky investments.

Vouk says that the decision to finalize this deal was supported by all parties in the regional council. The common goal was to minimize the interest burden on the region. Not only did the supervisory committee check and approve the transaction, also the bank never mentioned any risk.

Recently, an external auditor checked the transactions in question. His analysis concludes that the bank did not properly advise their client. Both parties already negotiate about the closing of this transaction since August. According to Vouk, the bank already accepted responsibility for a major part of the loss.

Financial expert Robert S from the consultancy Finanzbuddha confirmed that mayor Vouk ordered the transaction to be checked for hidden risks. Experts informed him that contrary to statements of the bank, this transaction is a speculative trade and not a classic hedge. Also, the earnings of the bank weren't market-standard, otherwise the region would have lost a lot less money with this investment.

Recently the bank agreed to cover 80 per cent of the losses which was answered by a counter-offer including 100 per cent coverage. If the bank does not comply, criminal charges will be considered. Whatever the outcome, at least damages of 90,000 Euro will be left to the region to deal with.

Austrian Times





Tag cloud:
Vouk  financial  Euros  mayor  Velden  bank  investments  regional  minimise  losses  risky  community  loss  hedge  transaction  lost  Carinthia  speculative  losing  government




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