Monika & Meinl
A bank fails and a retiree has no where else to turn
Monika Kosch effortlessly sketches out a plan. This for Meinl European Land, that for Frau Kosch. Below the line, a fat plus for both. Up to a 12% yield with virtually no risk? A surefire jackpot, won by a simple guessing game.
This is how it was explained to the 60-year old pensioner, Monika Kosch. It took a long time to convince herself it wasn’t too good to be true, and now the truth has caught up with her. As Kosch still struggles to understand the small print of what she agreed to; her money, happiness, and her future slowly ebb away.
She will soon be forced to move out of her house. Consumer advocates call this a loss of basic needs, but for Kosch, this is a catastrophy.
Stillness cloaks the house, behind Wiener Neustadt’s frayed fields. Only a clock ticks; pictures of flowers hang on the walls, family photos are propped up on shelves next to tiny statues of angels. Kosch stubs out her cigarette; it won’t be long before she reaches for her lighter again.
It’s been two years since the former Mindestrenterin, or "pensioner seeking minimum welfare," received an inheritance from her father. Retired on a subsistence pension, with this €500,000, she had planned to buy a house and invest the rest in a comfortable future.
But Kosch and her supposed savings plan has been drawn into a whirlpool of investment advisors, bank employees, stock speculators, and firm executives. And while her cigarette pack warns that smoking can be deadly, no one warned her that the financial system could be so fraught with risk. Her story serves as a testimony to the failure of the financial system. She muses over the basic trust in society that she as a citizen should be able to possess and concludes that banks, investment advisors, and stock companies no longer belong to such a society. This is a story, like others, that the political system must ultimately come to terms with.
"At the beginning," Kosch explains, "my telephone rang." This was late autumn 2006. It was her ex-husband, Mr. Kosch, who works for the investment advising company EFS (Euro Financial Service). He had heard about her unfortunate circumstances – and about her inheritance. Dreibuchstabenfirmen, or "Three-Initial Companies," like EFS, OVB, MBI and AWD, employ a battery of "product sellers," who complete a few insurance or investment courses and sales training and are then considered fit to sell financial products to family, friends, acquaintances, or to their ex-wives.
Five phone calls and three meetings later, Mr. Kosch was able to convince his former wife that her inheritance would be best invested in Meinl European Land (MEL) and a foreign currency loan. The interest accrued would apparently surpass all other possibilities, and the benefit of an enhanced pension was too good to resist.
At the beginning of 2007, MEL supposedly achieved a capital increase. In a few years, Julius Meinl V., the current CEO, had transformed the traditional grocery store into Eastern Europe’s biggest shopping center operator, with a total value of 6 billion Euros.
"Back then, I never thought I would invest in stocks," admitted Frau Kosch. Did she get a second opinion? No, says Frau Kosch. She had faith in her ex-husband.
In spring 2007, she recalls setting foot inside the "pleasant and trustworthy" atmosphere of the EFS office in Vienna’s sixth district. Mr. D – her official contact – assessed and divided Kosch’s assets into two investments, each lasting for 15 years. "There was not a word about risk," she sighs. A few weeks after these contracts were signed, Kosch placed her signature on another at an Erste Bank branch in Mariahilferstrasse. Mr. D had personally negotiated all the conditions for the 250,000 Euro foreign currency loan with the bank advisor.
"Investment consultants cooperate with the big bank institutes," says private investor advocate Wilhelm Rasinger. "They bring the clients who are then presented with an abundance of paperwork whose consequences they often don’t understand."
"Maybe I was made conscious of risks," reasons Kosch, sitting in her kitchen, "but I was told that I didn’t have to worry." There was no counseling at Erste Bank, outlining the risks. She was only asked to sign.
In April 2007, Frau Kosch transferred her assets to a Erste Österreichischee Sparkasse branch, clutching a payment slip of 150,000 Euros in one hand and 300,000 Euros in the other – a total of 450,000 Euros. On May 3rd, EFS bought the MEL certificate at an exchange rate of 21 Euros. It would never reach this mark again.
At the beginning of August, a MEL success story appeared in a business magazine named trend: "The chance of a century," it said, which now reads like a bad joke. What the reporter didn’t know was that a month before, MEL had put 25% of its shares in escrow. The international housing bubble had already threatened to pop; the prices had already begun to drop.
But not those of MEL. With two other public offerings pending – Meinl Airports International (MAI) and Meinl International Power (MIP) – MEL bought up all the shares. While probably illegal here, it remains to be seen whether Austrian law is applicable for a trust registered on the Channel Island of Jersey. By August 2007, MEL had bought 88 million shares using this method, valued at €1.8 billion, concealed until two days after the subscriptions closed. The market price plummeted.
Leafing through the paper the next morning, Kosch couldn’t believe her eyes. Nothing to worry about, her ex-husband assured her on the telephone, the money was invested long-term and values fluctuate. Within ten days the market value fell 20%. One billion Euros had disappeared, and Julius Meinl V. explained to the press that he was "running a bank and not a real estate business." Kosch discovered she had invested in stocks. Her financial consultant tried to reassure her with a line she would never forget:
"We haven’t lost any money, only time."
The Vienna Public Prosecutor is currently investigating the internal affairs of Meinl V., of former Finance Minister Karl-Heinz Grasser, and the MEL periphery. There are accusations of both fraud and embezzlement, with results expected later this year.
Among other examples, in 2007, the Meinl Bank cashed in on 160 million Euros in commission and fees from the MEL trust, and another 280 million Euros to buy out their management contract. Former Justice Minister, Dieter Boehmdorfer, has filed charges against MEL for deception.
In March, the market price for the MEL shares stood at 7.2 Euros.
"It can’t get any worse than it is now," soothed the news magazine Profil.
Once again, Frau Kosch met with an Erste Bank advisor. Mr. D, although present, remained quiet. A repayment account in the amount of 450 Euros per month was agreed upon and opened.
"We agreed that after this, there would be a year of silence," Kosch said, "with the understanding that, afterwards, more money would accumulate. I was told to find a cheaper place to live." The pensioner left the bank in tears. In August 2008, Kosch called ORF, asking to speak with Christoph Feuerstein, whom she felt she could trust after his interview with Natascha Kampusch. Feuerstein was on holiday.
In September, a class action lawsuit was filed against MEL, some 5,400 small investors, handled by the German firm Adofin. A lawyer with Adofin estimates the chances at 50-50, for a case that could take up to six years.
When asked, the Meinl Bank’s Julius Meinl V., claimed to be unaware of what was going on at MEL. Meinl Bank had "followed and adhered to all applicable provisions of law," he said. A spokesman for the Bank blamed the financial advisors who were responsible for not "informing clients about all possible risks involved in being a security holder." The Meinl name had taken only a "temporary hit," he said, and MEL-successor Atrium would be in a better position. For the "unfortunate stock price loss," well, this was simply a result of the "universally agreed upon, puzzling, and difficult ‘market situation.’"
There are dozens of cases similar to that of Kosch’s, says a spokesman for the Workers Chamber (Arbeiterkammer). "She is, unfortunately, for a number of reasons, regarded as an example," says Manfred Neubauer of the AK. "Apparently, they were not only badly advised, but they were also talked into taking up loans they didn’t need." Neubauer defines these cases as being "systemic problems." Often, it is the investment advisors job to just say, you don’t need me anymore, "but of course he wants the commission," says Neubauer.
EFS has declined to comment on Kosch’s case, as has her former husband and questions to her advisor, Mr. D, have been referred to the legal department.
By the end of our discussion, many trains rumbled past the house and even more cigarettes had been smoked. Kosch doesn’t seem relieved, even after she was given the chance to tell her story in detail. Instead, she seems only more frustrated.
"I had investment advisors, who were supposed to be there to advise me," she said. "And now, of course, it’s no one’s fault."
A presumption of innocence seems to have taken effect. Julius Meinl V. now wants nothing to do with the MEL affiliate. EFS’s asset consultant is also throwing up his hands: while it was his advice, he reasons, it is not his responsibility. She is seen as an unsuspecting pensioner and caught up in a risky financial scheme at Erste Bank.
And what about Monika Kosch. Doesn’t she bear some fault?
"No. This is only possible when one knows exactly what’s going on and still goes ahead," she says. "And if all had gone well, the plan would have amounted to something."
"Meinl," she says in closing, "is still a billionaire."
This article is published courtesy of the Viennese alternative weekly Falter, where it appeared first in German. The abbreviated names were withheld on request but are known to the editorial board. Translated by Michelle Falkenbach.