March 31 (Bloomberg) -- Austria's trade unions plan to sell Bawag PSK Bank, the lender that hid 1 billion euros ($1.2 billion) of losses in offshore accounts, after the scandal cost the biggest opposition party support ahead of elections this year.

``It was a painful decision, but it was the right decision to get Bawag out of the political mire,'' Rudolf Hundstorfer, acting president of the union federation, which owns 100 percent of the bank, said at a press conference today.

The Social Democrats shed 4 percentage points in a poll conducted for weekly News magazine after Bawag said March 24 it lost money in high-risk currency and interest rate investment accounts at bankrupt New York futures trader Refco Inc.

The affair has been front-page news in Austria, with headlines such as ``The Crash'' in the Kurier daily. The Social Democrats advocate protection against market abuse and the kind of speculative investments that led to Bawag's losses. The party traditionally draws support from the trade unions that the bank was set up to manage money for eight decades ago.

The governing People's Party would take 40 percent of the vote in elections expected in November, up 2 percentage points, News magazine said, compared with 39 percent for the Social Democrats. The poll has a margin of error of 2.2 percent.

For 69 percent of respondents, the ``Bawag scandal means that the Social Democrats will lose votes,'' the magazine said.

`Storm'

Klaus Poier, a political scientist at the University of Graz in southern Austria, called the turmoil the biggest since the 1980s, when state-run companies lost money speculating on the oil price, and said it was hurting the Social Democrats' credibility.

``Economically it doesn't make sense at all to sell a bank under pressure, but this is to get the bank out of the political storm,'' he said in an interview today.

The trade unions will hire an investment bank in coming weeks to prepare the sale, Hundstorfer said. The unions plan to sell all of Bawag and would prefer the bank to stay under Austrian ownership, Hundstorfer said.

Bawag may fetch as much as 2 billion euros, according to the Die Presse newspaper, which today named Wiener Staedtische Allgemeine Versicherung AG, Austria's biggest insurer, as a possible buyer. The paper cited Staedtische Chief Executive Officer Guenter Geyer as saying he's ready to start negotiations.

Wiener Staedtische spokeswoman Barbara Hagen-Groetschnig couldn't immediately be reached for comment today. Austria's Erste Bank is also interested, according to spokeswoman Karin Berger.

Biggest Losses

Bawag's losses are the biggest in Austria's banking history, according to research by daily Wirtschaftsblatt. Bank Austria Creditanstalt AG and Raiffeisen Zentralbank Oesterreich AG together lost about 580 million euros in 1998 when Russia's currency was devalued, according to the paper.

The transactions at Bawag were legal and approved by the bank's auditors KPMG, according to the bank.

Four board members of Bawag were ousted on March 27 after Bloomberg reported that Bawag-controlled companies in Anguilla held unregistered bonds in accounts at Refco. The same day, trade union leader Fritz Verzetnitsch resigned after 19 years in the job, a decision prompted by the Social Democrats, according to the front page of the daily Der Standard March 28.

Verzetnitsch, 60, quit after his finance chief, Guenter Weninger, disclosed three days earlier that he and the president pledged the federation's assets to guarantee Bawag's losses because the bank was at risk of insolvency in 2000.

The People's Party, led by Wolfgang Schuessel, 60, had urged union leaders to resign because of the losses and said they show that the Social Democrats can't handle economic issues.

`Workers' Bank'

The Social Democrats, led by Alfred Gusenbauer, 46, advocate higher spending on social security and oppose government plans to further reduce the corporate tax rate of 25 percent, as well as increasing regulation of capital markets.

The party was in power continuously between 1970 and 2000, before being unseated by the People's Party. Bawag said its losses were accumulated between 1995 and 2000.

``On the one hand they are fighting complex hedge fund investments and capitalist policies while their own bank managers invest there,'' said Poier, the political scientist.

Bawag was founded in 1922 as the ``Workers' Bank'' by Karl Renner, a socialist and Austria's first chancellor after World War I, to manage the money of Austria's trade unions. The bank has about 1.3 million customers and had assets of 56 billion euros in 2004. Net income rose 1.2 percent to 138 million euros that year.

Bawag in the early 1990s had profited from its hedge fund investments and thereby helped pay for benefits such as cheaper vacations or cheaper tickets for sport events for unions.

``The whole scandal isn't exactly good news for the Social Democrats,'' Walter Vesely, 80, a trade union member and party supporter, said in an interview. ``These speculative investments go far beyond of what a workers' bank should do.''

Last Updated: March 31, 2006 06:18 EST