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October 18, 2005

Futures, commodities business of Refco is sold, Mon., Oct. 17, 2005, 11:41 AM

The decision by Chris Flowers of the private equity firm J.C. Flowers to buy the solvent, regulated portion of Refco Inc was likely a smart move by a man known as an outstanding investor, if not also one with the label Repo Man". Nevertheless, Refco is now in good hands, and can be quickly stabilized. The interests of the staff and the clients were well served by the Refco board of directors who acted in due haste to ensure this transaction was completed today.

Investigators can now focus on the miscreant behavior of Phil Bennett and associates.

Reuters reported an interesting story that an Austrian bank by the name of BAWAG lent Bennett $430 million (355 mln euro) on the basis of RFX stock of Bennett being used as collateral, and that Bennett used those funds to repay Refco in a bid to save the company.

It now appears, with the NYSE-delisting of RFX, the criminal charges, the ongoing investigation, and the loss of share value given the apparent huge loss of Refco Assets Under Administration (AUA), that the value of the collateral held by BAWAG is more than a little suspect. That bank will take a huge loss.

I have to wonder what due diligence process BAWAG could have taken to cause them to enter into such a hurried transaction in the first place. The mind boggles.

Posted by Posted by Bill Cara on October 18, 2005 11:43:03 AM | Category: Cara Today in the Market