ÁKK CEO resigns after MNB closes Széchenyi Bank

December 9, 2014


It appears István Töröcskei may have unwittingly defrauded Hungarian taxpayers of some HUF 1.7 billion (USD 6 million), not in his capacity as CEO of the State Debt Management Authority (ÁKK), a position he has held since Fidesz came to power 2010, but as the majority owner of the Széchenyi Bank, whose right to operate was revoked by the National Bank of Hungary (MNB) on Friday for failing to meet capital and other statutory requirements.

In June 2013 the Hungarian state acquired a 49 percent interest in the bank with the purchase of HUF 3 billion in nominal shares.

It did so after the bank’s general assembly voted to increase the bank’s registered capital to HUF 6.122 billion through a capital injection of HUF 3.44 billion, the bank having lost HUF 1.2 billion in 2012 and HUF 2.006 billion in 2013.

According to a statement issued by the Ministry of National Economy on Friday, “the state only learned of the bank’s weak capital position after acquiring its minority interest”.  Allegedly, the minority shareholder used “every means at its disposal” to compel the majority owner (Töröcskei) to restore the lawful and effective operation of the bank so as to stabilize its financial situation, i.e. to pony up his share of the HUF 3.44 billion capital increase called for by a resolution of the bank’s general assembly in June 2013.

According to government official Gábor Orbán, the fact that the majority owner neglected to raise the bank’s capital compelled the National Bank of Hungary to revoke the bank’s operating permit on Friday and suspend its seat on the Budapest Stock Exchange.  The National Bank also ordered that the National Depositors Insurance Fund (OBA) reimburse depositors for lost deposits of up to EUR 100,000 (HUF 30 million) within 20 days.

News of this astonishing development was overshadowed by Friday’s “extraordinary” announcement by Minister for National Economy Mihy Varga that Hungary had signed a pre-contract to acquire the Budapest Bank from GE Capital.  The development certainly calls into question whether the government of Hungary should be in the business of owning banks.

With only 1600 depositors and 0.14 percent of the banking sector’s total assets, the 100 percent Hungarian-owned Széchenyi Bank  will hardly be missed, although the billions in taxpayer forints necessary to reimburse depositors certainly will be.

The fate of deposits exceeding HUF 30 million is to be determined over the course of the bank’s liquidation according to a ministry statement.

Among those affected by the Szécsenyi Bank’s collapse is the CIG Pannonia Life Insurance Company,, the wholly owned subsidiary of CIG Pannonia First Hungarian General Insurance Company Zrt., which had HUF 170 million on deposit at the bank, according to its website.

Pursuant to Friday’s announcement, Szécsenyi Bank majority owner Töröcskei resigned as the CEO of the State Debt Management Agency.

The Széchenyi Bank was originally founded by an off-shore company with a starting capital of HUF 2 billion.  In 2009 it received a permit to operate.  In March 2010 the Financial Organizations State Oversight Authority (PSZÁF) authorized two companies, T&T real estate trade and assets manager Zrt. (T&T), a company owned by István Töröcskei, and Terra-Danubia Service Provider Zrt, to acquire an “influential interest” (more than 20 percent) of the bank.  At that time the bank’s name was changed first to Helikon Trade Bank and then to the Széchenyi Bank.

In July 2013, perhaps in anticipation of purchasing the Raiffeisen Bank, the Hungarian state acquired its 49 percent interest in the bank.  It is not known why it should have taken MNB nearly 18 months to determine that the bank’s owners had failed to provide additional capital necessary to meet Basel II criteria.