The rape of Takarekbank: Crony capitalism at its very worst

March 4, 2014


By classifying all documents surrounding the privatisation of Takarekbank and preventing any review by regulatory agencies, the Hungarian government has demonstrated not only bad faith, but its utter disregard for the rule of law and the sanctity of private property.

Takarekbank is Hungary’s largest banking cooperative. Its shareholders are many dozens of independent, small credit unions scattered around the country.  Once dubbed the “banks of the countryside” Hungary’s credit unions provide basic banking services to its rural population, including hundreds of towns and villages not serviced by commercial banks. Most credit unions were founded by local business leaders.

Because they were small and offered a limited range of financial services, Hungary’s credit unions were not affected by the FX loan crisis and subsequent “burden sharing” legislation.  Local knowledge and conservative lending practices resulted in healthy balance sheets and solid loan portfolios.

Takarekbank: Credit Union of Credit Unions

In 1989 a large number of credit unions pooled their resources to establish the Hungarian Association of Credit Unions, (Magyar Takarekszovetkezeti Bank Rt.), otherwise known as the Takarekbank.  The Takarekbank enabled them to pool resources and expand the scale and scope of services they provide, including bank transfers, payment and cash withdrawal services, and levels of financing otherwise too large for any one credit union to provide on its own.

The range of financial services provided by Takarekbank through its constituent members proved efficient and effective.  And it was built from the ground up by small Hungarian businesses.

Enter the National Development Bank

In 1997 DZ Bank, a German credit union and Germany’s fourth largest bank, acquired a 38.46% stake in Takarekbank.  An injection of capital followed.

In November 2012 DZ Bank sold its share to the state-owned National Development Bank (Nemzet Fejlesztesi Bank).  The government declared the details of the transaction a “trade secret”.  However, according to the transaction was worth between HUF 4 and 5 billion (USD 20 million and USD 25 million).  The reason given for the purchase of shares in Takarekbank by the National Development Bank was to “streamline” services provided by Takarekbank’s 1600 branch offices.  

When acquiring the shares, the government did not seek the approval of Hungary’s Economic Competition Authority (Gazdasagi Versenyhivatal, GVH) claiming the transaction did not constitute a merger of the two banks and therefore had no effect on competition.  Unaware what the government was up to, the majority of the shareholders consented to the transaction.   (Takarekbank’s bylaws state the sale of shares can only take place if consent is granted by a majority of its shareholders).

Enter EU funds

Many believed the government’s real intention was to facilitate a rotating European Union financing scheme scheduled to begin in Hungary in 2014. The EU financing scheme directs the governments of recipient member countries to form public-private partnerships with non-government entities for the distribution of EU funds.  In addition, PPPs are to inform the public about EU subsidies and other EU financing opportunities provided for rural- and agricultural development, and local renewable energy projects.

Many believed that by arranging for the National Development Bank to acquire a 38% stake in Takarekbank the government of Hungary had found its non-governmental entity with which to form a PPP. With branches in most rural towns and villages, Takarekbank’s network of credit unions was the ideal network through which to distribute EU funds.

Enter Viktor Orban and Tamas Vojnits

In December 2012 Prime Minister Viktor Orban appointed former FHB (a Hungarian commercial bank) executive Tamas Vojnits to develop a government “strategy” for “harmonizing government services with financial services provided by Hungary’s credit unions”.

Orban called on Vojnits to draw up a detailed project plan and manage the organization responsible for executing the “strategy”, as well as coordinate the implementation of strategy’s administrative functions with all national agencies and regulatory bodies.

Orban ordered the Ministry of National Development to secure all “resources and infrastructure” necessary for Vojnits to perform his day to day duties.  All government agencies affected by the strategy were directed to make available all necessary data, information, and research required by Vojnits to complete his task. Vojnits was assigned a staff of two assistants.

Tamas Vojnits enlisted former colleagues from FHB to help coordinate the strategy. For months very little was known about the government’s plans to “streamline services” provided by Hungary’s credit unions. Rumors began circulating that the government wanted to somehow integrate credit union retail banking locations with the Hungarian Post Office.

Former FHB directors appointed to key government posts

Between December 2012 and May 2013 a number of former FHB executives were appointed to certain government posts which would later prove pivotal in the government’s strategy regarding the centralization of Hungary’s entire savings cooperative system, the nationalization of Takarekbank, and its reprivatisation–all over a span of nine months.

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

Over the next six months a number of individuals with unusually close ties to Hungarian bank FHB Jelzalogbank Nyrt., led by CEO Zoltan Speder, were appointed to positions that would later prove essential to the government acquiring majority ownership of Takarekbank against the will of its shareholders, imposing a new company structure, creating a new savings cooperative regulatory agency, and the subsequent sale of the government’s shares in Takarekbank to the very people responsible for developing and implementing the government’s “strategy”.

Lex specialis bypasses bylaws and a host of laws

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

The special law created a new shareholder in the bank, the Hungarian Post, by mandating an injection of government capital into the company. Combined with the National Development Bank’s 38.46 percent stake, the Hungarian Post’s 20 percent stake gave Hungary’s government a 58.46 percent ownership in Takarekbank.

The lex specialis not only allowed the government to circumvent both the Economic Competition Authority (Gazdasagi Versenyhivatal, GVH), and the Financial Services Oversight Agency (Penzugyi Szervezetek Allami Felugyelete, PSzAF).  It allowed the government to pass a law whose provisions violate existing laws in force, including laws regulating the institution of private property.  The law also provided for any shareholders opposing changes within the Takarekbank to 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 Banking Cooperatives Integration Organization (Szovetkezeti Hitelintezetek Integracios Szervezete, SZHISZ) to help “streamline” the entire sector. The Banking Cooperatives Integration Organization was owned by the National Development Bank.  However, subsequent developments revealed that the the real purpose of SZHISZ was to enable the government to impose its will on the country’s credit unions.

FHB prepared to take over Takarekbank

Former FHB executive Daniel Lontai became chairman of Takarekbank’s supervisory board, and was appointed president of the Banking Cooperatives Integration Organization (Szovetkezeti Hitelintezetek Integracios Szervezete, SZHISZ). Former FHB executive Zsolt Sarka was appointed chief executive of the Hungarian Post, and was later made a member of Takarekbank’s executive board. An executive board member with Takarekbank with close ties to Speder, Csaba Nagy, CEO of the Hungarian Development Bank was appointed chairman of SZHISZ.

The re-privitasation of Takarekbank

In December 2013 the Hungarian 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 “take into consideration Takarekbank’s existing shareholders”, and that the transaction be “most advantageous for the entire savings cooperatives sector”.

The bidding process was ordered to begin on 15 January 2014 and 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 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 in Takarekbank for an amount approaching fair market value. The tender stipulated that “outside parties” pay at least twenty 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 ownership in the Takarekbank from the national government in that no one individual credit union could afford to acquire all the government’s shares, and a consortium of credit unions or the credit union association itself would have been required to pay twenty times 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 sole bid came from a company called Magyar Takarek Zrt.

On 6 February FHB Jelzalogbank Nyrt. announced that it had acquired 25 percent in Magyar Takarek Zrt. three days before the bidding deadline. Magyar Takarek Zrt.’s directors include FHB Jelzalogbank Nyrt. CEO Gyula Kobli and FHB Supervisory board member Erik Landgraf.

At the same time it was revealed that Vojnit’s EHPSZ Kft. is also a shareholder in Magyar Takarek Zrt., as is the FHB Bank (25 per cent) and the Hungarian Development Bank.

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

Transparency International

According to Transparency International, Magyar Takarek Zrt.’s acquisition Takarekbank serves as a great example of the lengths to which certain business groups with close government connections are willing to stoop in order to get what they want.

A clear case of self dealing

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 close associates of theirs are interested.

In the case of Takarekbank, the ownership rights of Takarekbank’s 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 Takarekbank’s shareholders of their property rights and their ownership rights in order to transfer a controlling interest in Takarekbank to a specific group.

Having annulled  Takarekbank’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.

The government-appointees responsible for managing the integration of Takarekbank with the National Development Bank, the Hungarian Post, and the Banking Cooperatives Integration Organization all arrived at their posts in 2013 from executive positions at FHB, which turns out to be the 25% owner of the Magyar Takarek Zrt.

The same group of people were on both sides of a transaction. By classifying all documents about the privatisation of Takarekbank and avoiding any review by regulatory agencies the Hungarian government has demonstrated not only bad faith, but utter disregard for the rule of law and the sanctity of private property.

Economist and former Minister of Finance Lajos Bokros told the Budapest Beacon that what happened with Takarekbank clearly represents the unconstitutional destruction of the sanctity of private property and “is a nail into the coffin of the rule of law” because the government “used legislation in order to achieve sinister political purposes rather than providing a level playing field for everybody. “[Hungary] has returned to medieval times where there is no autonomy in law or economics, no autonomy anywhere. Everything just falls under totalitarian rule.”

Referenced in this article:

Vitték a bankot, Népszabadság; 18 February 2014.

Útba esik jövet-menet, Népszabadság; 24 July 2013.

A takarékszövetkezetek Trianonja, Népszabadság; 24 August 2013.

Nyilatkozatháború a Takarékbankról, Népszava; 18 February 2014.

“Dontenek egy nagyot, aztán meg lesnek, hogy jé, mindenki a szívóágon van”, Mozgó világ; November 2013.

Fefolyásos az FHB, Népszabadság; 20 February 2014.

MAGYAR KÖZLÖNY 211. szám,; 17 December 2013.

Március végéig eladja az állam a Takarékbankot,; 17 December 2013.

“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”., 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.

Lajos Bokros on the sad state of Hungarian Democracy in 2014,; 28 February 2014.

Törvényt sérthet a Takarékbank eladása,; 13 February 2014.

Ilyen furcsán nem adtak még el bankot Magyarországon,; 28 February 2014