Bloomberg recently reported that Refco may have held offshore accounts with as much as $525 million in fake bonds at its Bermuda-based unit. The bonds appear to have been owned by six companies incorporated in Anguilla, which were in turn owned by a fund called Liquid Opportunity and Bawag.

The six companies were incorporated on July 26, 2004, by a local agent, and were initially listed as Refco creditors with a combined claim of $543 million.

Refco filed for Chapter 11 protection from creditors on October 17th, one week after the firm said former chief executive Phillip Bennett had hidden $430 million of bad debt.

In a statement issued last week, Bawag stated that it "wishes to make it clear that the losses from the so-called Caribbean transactions have been fully absorbed in previous years' financial statements and no longer constitute a risk exposure for the bank".

With media speculation over Bawag's finances having grown in recent days, a press conference was called by the firm on Friday in an attempt to set the record straight.

According to Bawag, in 1995, the bank resumed the financing of investment companies mainly engaged in interest rate and currency derivative transactions, which had been discontinued in 1994. Those transactions were terminated in 2000 with losses of approximately EUR1 billion.

The bank's principal shareholder, the Austrian Association of Trade Unions (ÖGB), backed the bank and provided the necessary collateral. "On the basis of such collateral it was possible to absorb the losses in the subsequent years and to write them off fully by the end of 2005," the bank stated.

"Bawag P.S.K. has managed to solve these problems and, in addition, generated an accumulated operating result of EUR 1.2 billion between 2000 and 2004," the bank explained.

Bawag was originally affected by the Refco insolvency to the tune of EUR425 million of which EUR350 million (US$421 million) originated from the loan granted to Refco in October 2005. After the sale of EUR33 million of this loan, the remaining exposure amounts to EUR 392 million, the bank explained.

However, Bawag said that the outstanding exposure has been "fully provided for in the 2005 financial statements".

An action for fraud against Refco and Mr Bennett filed by Bawag last November is pending in court.