Takarekbank sale completed after Constitutional Court green lights transfer of government’s shares

August 8, 2014


 The government of Hungary completed the sale of its majority shares in Takarekbank on Wednesday to Magyar Takarek, a company registered earlier this year whose shareholders included FHB Bank, a handful of savings cooperative owners, and a small state-owned business run by Tamas Vojnics, the government-appointed commissioner responsible for nationalizing Takarekbank in the first place.

The sale was finalized five weeks after the Constitutional Court ruled that Hungary’s Parliament may adopt arbitrary legislation granting the state the authority to interfere in economic matters, such as the expropriation of private property, and may even curtail property rights and commercial rights, as long as sufficient reasoning is provided.

Transparency International Hungary called the Constitutional Court’s ruling “strange and tragic” in that the court found that the curtailing of Takarekbank’s non-state shareholders’ property rights and entrepreneurial freedom was permissible because the state had established that its actions were “in the interest of the public good”.  Critics argue that it was not so much the public’s interests that were served but rather the selfish economic interests of a group of individuals who sat on both sides of the transaction.


The Hungarian government acquired a 54% stake in Takarekbank in 2013 after new legislation had forced all savings cooperatives to join the government’s newly-created Financial Services Cooperatives Integration Organization. Then, following a series of legislative maneuvers, Parliament effectively nationalized Takarekbank.  Shortly thereafter the government announced plans to sell its shares in the bank to private investors at international tender.

Nationalization and re-privatization riddled with conflicts of interest

Hungary’s government acquired a stake in Takarekbank in November 2012 when the Hungarian Development Bank (MFB) purchased 38.46% of the savings cooperative from Germany-based Deutsche Zentral-Genossenschaftbank. The government managed to bypass any review of the transaction by the Economic Competition Authority (GVH).

In December 2012, Prime Minister Viktor Orbán appointed Tamás Vojnits, a former FHB Bank executive, to work out the government’s strategy to “harmonize the services of the government and Takarekbank”. Vojnits was given authority to coordinate the administrative details with all national agencies and regulatory bodies, and the Ministry of National Development was ordered to provide him the funding and infrastructure to complete his work.

In January 2013, while serving as the government-appointed commissioner to implement the “strategy” to streamline Takarekbank’s services, Vojnits was elected CEO of a company called First Homeland Financial Service Development Kft. (EHPSZ). It would later serve a crucial role in the takeover of Takarekbank.

In June 2013 the MFB asked Takarekbank’s shareholders to approve the transfer of one Takarekbank share to EHPSZ, Tamás Vojnits’ company. When Takarekbank’s shareholders failed to render a decision one way or the other, the government passed lex specialis legislation which effectively handed control of the Takarekbank to the national government.

The special law created a new shareholder in the bank, the Hungarian post office Magyar Posta, by mandating an injection of government capital into the company. Combined with the National Development Bank’s 38.46% stake, the Hungarian Postal Service’s 20% gave Hungary’s government a 58.46% stake in Takarekbank.

The lex specialis not only allowed the government to circumvent both the GVH and the financial watchdog Pszáf. It allowed the government to pass a law whose provisions violate existing legislation, including laws regulating the institution of private property. The law also ensures that any shareholders opposing changes within Takarekbank would lose their shares.

Takarekbank’s shareholders were then forced to elect a new board of directors and new executives for the bank acceptable to the state-owned majority shareholders. The law also created a new government regulatory agency, the Financial Services Cooperatives Integration Organization (SZHISZ), to help “streamline” the entire sector.

The re-privatisation of Takarekbank

In December 2013 the government announced its intention to privatize the recently nationalized Takarekbank. The government ordered that its 58% stake be sold “to the highest bidder in an international bidding procedure”, that the sale “consider Takarekbank’s existing shareholders” and that the transaction be “most advantageous for the whole savings cooperatives sector”.

The bidding process was scheduled to begin on 15 January 2014 and to close on 6 February.  The government also ordered that a committee be established to determine the minimum selling price of the government’s stake in Takarekbank, and to oversee its sale.

According to the terms of the prohibitively expensive tender documents issued in January, only individual credit unions or companies owning shares in Takarekbank could offer to acquire the government’s shares for an amount approaching fair market value. The tender stipulated that “outside parties” pay at least 20 times the minimum price established by the committee. Industry experts pointed out that this effectively precluded credit unions from pooling their resources to buy back shares in the Takarekbank from the national government due to the fact that no individual credit union could afford to acquire all of the government’s shares, and a consortium of credit unions or the credit union association itself would have been required to pay twenty times the fair market value.

On the eve of the 6 February deadline, the government announced that it had only received one bid. The government-appointed committee tasked with overseeing Takarekbank’s privatisation refused to name the sole bidder, but industry experts reckoned that the offer had come from a company called Magyar Takarek.

On 6 February FHB Jelzalogbank announced that it had acquired 25% of Magyar Takarek three days before the bidding deadline. Magyar Takarek’s directors include FHB Jelzalogbank CEO Gyula Kobli and FHB supervisory board member Erik Landgraf. At the same time it was revealed that Vojnit’s EHPSZ is also a shareholder in the company, as is the FHB Bank (25%) and the MFB.

On 26 February 2014 the Hungarian government ordered that details of Magyar Takarek ’s acquisition of Takarekbank be classified on the grounds that the transaction was of significant national importance, thereby circumventing any oversight from GVH.


Laws governing financial services clearly forbid self-dealing of this nature, stating that financial institution executives (including board members) are not allowed to take part in the preparation or implementation of a decision in whose outcome they or their close associates are interested.

In the case of Takarekbank, the ownership rights of its shareholders were abrogated by a lex specialis which overrode the provisions of numerous other laws. In other words, the Hungarian government adopted a special law depriving the bank’s shareholders of their property rights and ownership rights in order to transfer a controlling interest in Takarekbank to a specific group.

Having annulled the bank’s bylaws to acquire a majority interest and impose a new management structure, the government then arranged for its shares to be sold by “international tender” to the one and only bidder, which turns out to be part-owned by a company run by the government commissioner responsible for developing and implementing the government’s strategy in the first place. The exact terms of the sale have been classified so there is no way to determine whether the government received fair value for its shares.

Same group on both sides of transaction

The government appointees responsible for managing the integration of Takarekbank with the MNB, the post office and the Banking Cooperatives Integration Organization all arrived at their posts in 2013 from executive positions at FHB, 25% owner of Magyar Takarek.  All documents on the privatisation of Takarekbank were kept out of public view, and no reviews by regulatory agencies took place.

Budapest Municipal Court suspends sale of shares and refers case to the Constitutional Court 

On 18 April Budapest Municipal Court ordered the suspension of any further actions regarding the sale of Takarekbank.  The main plaintiff in the case, the Association of Hungarian Credit Unions, claims that the postal service’s acquisition of Takarekbank shares in August 2013 resulted in the unlawful forcing of the bank’s existing shareholders into a minority position, causing them financial damage.

On why it suspended the sale of Takarekbank pending a decision by the Constitutional Court, Budapest Municipal Court reasoned:

The Constitutional Court is already considering a case regarding the legal complaint of a private citizen. This Court agrees with the legal reasoning of the complaint and finds there to be sufficient legal merit in its arguments. Therefore, the privately-submitted legal complaint under consideration by the Constitutional Court must be treated as if it had been referred to the Constitutional Court by this court. This court has determined that the law cited in the complaint is unlawful on numerous points and can be considered unconstitutional. This court finds the law in question to be unconstitutional on the grounds that it violates private property rights, the rule of law, and fair economic competition through prohibited use and abuse of a dominant position.

By siding with the plaintiffs, Budapest Municipal Court gave a judicial recommendation to the Constitutional Court to rule in favor of the plaintiffs. The Constitutional Court would have to rule whether the 2013 law on integrating Hungary’s credit unions violates the rights of private property, and uses the letter of the law to force compulsory action on shareholders. The Municipal Court of Budapest believed that in addition to violating contractual rights guaranteed to Takarekbank’s shareholders, the state’s action also amounted to a violation of fair economic competition because the government used its legislative prerogative to provide a third party with key market advantage.

The Budapest Municipal Court judge said the curtailing of rights is not acceptable even if it is only for a transitional period, the plaintiffs’ standing in this case extends beyond any transition period, and that compensation for financial injury in no way legitimizes a violation of the law.

The judge also stated that while benefits providing security to Hungary’s banking sector through restructuring the credit union sector are important points to consider, the Court dd not consider these points to be fundamental rights or constitutional values, and illustrated the Court’s reasoning by pointing out that “the forced labor camps of the 20th Century provided an obvious benefit to the economy, but they are still unacceptable”.

The judge also pointed out that the case presents numerous questionable issues, including why it was necessary to integrate those credit unions who chose not to become part of the new integration, why they were given no opportunity to raise capital if the purpose was to provide institutional security, and how the law contributed to a situation in which private investors acting in accordance with private interests were able to acquire a controlling interest in Takarekbank.

After explaining the legal reasoning for the Municipal Court’s decision, the judge announced that Magyar Posta must suspend all proceedings for the sale of its shares in Takarekbank because the Court found the 2013 law with which Magyar Posta acquired the shares violated the owners’ right of private property, the rule of law and fair economic competition. The suspension would remain in place until the Constitutional Court ruled on the legality of the law.

The Constitutional Court rendered its decision: the sale of Takarekbank is not unconstitutional

On 2 July 2014 Hungary’s Constitutional Court ruled in the case brought by the Association of Savings Unions. The association had argued that the state had forced Takarekbank’s shareholders out of the business by the parliament’s enactment of coercive legislation.

The Constitutional Court ruled that Hungary’s Parliament may adopt arbitrary legislation granting the state authority to interfere in economic matters, such as the expropriation of private property, and may even curtail property rights and commercial rights, as long as sufficient reasoning is provided. Transparency International Hungary called the ruling “strange and tragic”.

The Constitutional Court’s decision essentially allowed the state to proceed with the sale of Takarekbank, but it was its dissenting opinions which really summed up the unconstitutionality of the Takarekbank nationalization and re-privatization.

Justice Bragyova wrote in his dissenting opinion that the curtailing of Takarekbank’s shareholders’ (property) rights was so great that it was tantamount to theft.

According to Justice Kiss, “legislators used broadly defined economic policy to justify the legitimacy” of their actual goal, which appeared to be the creation of “a new, state-managed organization for the purposes of a later privatization”.

Referenced in this article:

Az Alkotmánybíróság szerint nem sérti az Alaptörvényt a haveri kapitalizmus, korrupcio.blog.hu; 21 July 2014.

Az AB kikelt a sötétben bujkáló kapitalisták ellen; korrupcio.blog.hu; 17 July 2014.