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Nationalization of Hungarian credit union Takarekbank

On 27 June 2013 the Hungarian parliament passed a “special law”  effectively nationalizing the credit union Takarekbank over the objections of shareholders and industry experts.  According to the bill  its goal was to “reorganize the sector”, “streamline services”, and “increase professionalism”.

Dávid Ferenc, secretary general of National Association of Entrepreneurs and Employers, claimed the law violated the interests of Takarekbank’s shareholders and customers.  The Chairman of the Association of Credit Unions, Sandor Demjan, criticized the bill, calling it “unacceptable”.  Nevertheless, the bill passed within 48 hours of being submitted to parliament, prompting the resignation of Takarekbank chairman Peter Csikaky.

The bill mandated a HUF 655 million increase in Takarekbank’s registered capital to be provided by the Hungarian Post Office (Magyar Posta) in exchange for a 20 per cent ownership interest.  Combined with the 38.46 per cent stake acquired by the Hungarian Development Bank (NFB) last November this effectively gave the government indirect control of the Takarekbank through the two government owned banks.  Arguing that the purchase “obviously did not impact the competitiveness of the banking sector”, the government did not seek the permission of the National Competition Authority (GVH) prior to the NFB purchase in 2012.  Details of this transaction were not made available to the public on the grounds that they were “trade secrets”.

Apart from a last minute presentation made to astonished shareholders the Friday before the bill was introduced, Takarekbank shareholders had little say in the matter, prompting many to accuse the government of exhibiting wanton disregard for shareholder rights and private property.

Invoking the rarely used doctrine of lex specialis the “special law” adopted by parliament overrode existing laws as they pertain to Takarekpenztar, including laws regulating private property rights, commercial transactions, and the purchase and sale of securities. According to the special law the government need not seek approval from either GVH or the Hungarian Financial Supervisory Authority (PSzÁF) and may sell its shares in Takarekbank at any time.

In addition to mandating that 20 per cent of the shares be transferred to the Postabank (thereby diluting the shares of existing shareholders by 20 per cent), the law gives the new majority shareholders the right to impose on the minority shareholders new directors and a new operating agreement.  The shares of any shareholder opposing this are to be forfeited to the Hungarian government.

Not surprisingly, at a meeting held last month Takarekbank shareholders formally approved the above. The Takarekbank’s new boss, Tamas Vojnics, happens to be the government commissioner tasked with “overhauling” the Hungarian banking sector. Many Takarekbank shareholders consider him unqualified for the job, pointing out that he has never worked for a credit union or savings cooperative. In his own defense Mr. Vojnics claims to have “sufficiently researched how savings unions work in other countries to know what (he) is doing”.

The effective nationalization of Takarekbank has raised numerous questions including what steps will be taken to ensure an equitable return to minority shareholders in the event the government sells its shares. Ferenc David claims the government’s actions devalued the bank’s shares to approximately one-fifth of their market value.

Should the government decide to sell its stake in Takarekbank it is unclear whether such a deal would be subject to regulatory oversight from PSZAF or GVH, or whether foreign companies would be allowed to bid for the government’s stake, especially given Prime Minister Viktor Orban’s determination to increase the level of Hungarian ownership in the banking sector.

In comments given to ATV last month National Savings Bank (OTP) Chairman and CEO, Sandor Csanyi, expressed the bank’s interest in acquiring the government’s stake in Takarekbank, claiming its roughly 1500 countrywide branches make it perfectly suited to be the country’s administrator of special financing provided by the EU starting in 2014.

Recipient countries of these EU funds are encouraged to form Public Private Partnerships (PPP) that will provide EU-backed financing for programs primarily related to agricultural development and renewable energy.  Orban has repeatedly called for consultations on forming such a PPP which he calls a “green bank.”

Mr. Csanyi, Hungary’s top banker, had submitted a proposal to parliament in February outlining a “green bank” partnership with the government in which the latter was to have a 25 per cent stake. Csányi’s  proposal was removed from the Hungarian parliament’s agenda in August following the nationalization of Takarekbank.

According to Andras Fulop, partner at Budapest Deloitte Touche Tohmatsu Ltd. if there isn’t a countrywide network to facilitate financing, no projects lined up, no tender specialists familiar with the EU’s extremely complex financing system, then there is little point to the EU making these funds available. Such a bank would be able to offer small businesses a range of financial services and products including EU funding in the form of grants and loans, bridge financing, state guarantees, and project financing consulting. In Hungary there are currently only two organizations whose businesses could serve as a platform for Orban’s “green bank”: the savings unions and OTP.

With the Takarekbank’s effecive nationalization it appears the Hungarian government has chosen who its partner will be for Hungary’s “green bank”.  Perhaps it has chosen who OTP’s future partner will be and the terms of that marriage.

Referenced for this article:

“Megerősítették: Lemondott a TakarékBank elnök-vezérigazgatója”. Világgazdaság, 2 July 2013.

“Dávid Ferenc: A takarékszövetkezetek Trianonja” .Népszabadság Online. 29 August 2013.

“Takarékszövetkezetek államosítása: trafikmutyi deluxe”.Ténytár. 29 August 2013.

“Csányi nem csinálhat zöldbankot”. Index. 16 August 2013.

“Pénzzel és a Postával erősítik a takarékszövetkezeteket”. Origo. 25 June 2013.

“Óriáspolipok Orbán medencéjében”. Komment.hu, 2 July 2013.

“Ha kirabolnak, tegyék rendesen”. Origo. 27 June 2013.

“A kormány embere lett a Takarékbank új elnöke”. Origo. 29 August 2013.

“A takarékok vezetői tapsviharral, morgással tiltakoztak”. Origo. 27 August 2013.

“A takarékok elvonultak kisemmizni magukat”. Origo. 27 August 2013.

“Demján Orbánnak: Ez elfogadhatatlan!” Origo.  28 June 2013.

Benjamin Novak :