On the evening of February 22, an entire police squad arrived at the headquarters of the Buda-Cash Group, a financial institution established in 1995. Despite its unfortunate name, it is not a payday lender. Among other things, Buda-Cash (BC) owns a network of eleven brokerage firms with 200 employees and about 20,000 customers and engages in financial advising and portfolio management. It also owns four small banks that formerly functioned as credit unions and that managed to remain independent at the time other credit unions were nationalized in 2013-2014.
The following day, February 23, László Windisch, one of the deputies of György Matolcsy, head of Hungary’s central bank (Magyar Nemzeti Bank), described in dramatic terms what he considers to be the greatest financial scandal in Hungary. The National Bank suspects that over the last fifteen years the top management of BC siphoned off as much as 100 billion forints of its customers’ money.
The National Bank is new to the business of supervision. Until about a year and a half ago a separate governmental body, Pénzügyi Szervezetek Állami Felügyelete (PSZÁF), supervised the financial sector. The last time there was a thorough inspection of BC was in May 2010, when some small irregularities were discovered but nothing substantial. By that time, PSZÁF had a Fidesz-appointed chairman, Károly Szász.
From day one people who know something about the world of finance in general and Hungarian finance in particular had their doubts about some of the details of the case. First of all, it soon became evident that the Hungarian National Bank, into which PSZÁF was incorporated, has not yet done any investigation. The police were gathering documents even as Windisch’s press conference was in progress. The second fact that bothered financial experts was the size of the alleged loss, as much as 100 billion forints. The sum total of securities currently held in Hungary is only 250 billion forints. To steal almost half of this amount without anyone realizing it is hard to imagine. Moreover, there were in Windisch’s announcement several indications that the Hungarian National Bank knows very little about the whole case. He talked about a “suspicion of possible wrong doing.” And when he referred to the size of the loss, he cautiously noted that “it may even be 100 billion.” Clearly, he was groping in the dark.
The following day came a new announcement. All four small banks owned by the Buda-Cash Group had to be closed. The response to this announcement was understandable panic. After all, the four banks have roughly 120,000 customers, among them about 80 municipalities which now can’t even pay their employees. Eventually, the National Bank decided to reopen some of these banks but limited withdrawals to 60,000 forints. Well, the municipalities won’t be able to do much with that amount of money.
Why were these banks closed? One theory is that the government through the Hungarian National Bank wanted to punish BC for managing to save its four credit unions from nationalization. Those holding this view are convinced that the four banks are in fact in good financial shape. They claim that in the last few months the Hungarian National Bank checked one of these banks at least six times and found everything to be in good order. Others are not so sure. They believe that the banks are in trouble and should be closed after their customers are fully compensated, as guaranteed by the bank law. And since the fund (Országos Betétbiztosítási Alap = OBA) that is supposed to make all depositors whole is financially strapped because of an earlier bank failure, the Hungarian National Bank would most likely have to come to the rescue. Therefore, according to those who dismiss the conspiracy theory, it is not in the interest of the National Bank to create a case out of thin air.
It remains unclear what’s going on with the Buda-Cash Group and its affiliates. Is the scandal real or imagined? The suspicion that it may be imagined was heightened this afternoon when Antal Rogán, head of the Fidesz parliamentary delegation, called the BC case a “socialist brokerage scandal.” Rogán claimed to know the details of the case. According to him, the owners of BC stole the money deposited in its banks by people of modest means. And BC had to be closely linked to the socialist-liberal government because, for example, Gordon Bajnai asked the chairman of BC’s board to become government commissioner in charge of the restructuring of MÁV (Hungarian State Railways). Bajnai also appointed Miklós Andrási, former manager of BC, to be the CEO of MÁV. Rogán added that Andrási was one of the founders of Fidesz, but once they discovered that he was “Bajnai’s man” the party broke all ties to him.
Fidesz is trying to make political capital out of a case we know practically nothing about. Understandably so. The top leadership of Fidesz was badly shaken by the loss the party suffered in Veszprém, a defeat that came less than two months before another by-election will be held in the same county. Moreover, there is the rapid loss in popularity of Viktor Orbán, his government, and his party. Orbán’s attack on refugees and migrants was allegedly devised to counter this trend. Some people are convinced that the idea came straight from the most important spin doctor of Fidesz, the American Arthur J. Finkelstein. Admittedly, it’s a clever move since Hungarians are not at all keen on immigrants. If the government can also show that its opponents are linked to an egregious financial scandal, so much the better.
Late this evening the Budapest Stock Exchange restored Buda-Cash’s right to continue its activities, admittedly with major restrictions. They can trade only in derivatives (currencies), not stocks, and can only close out positions they hold, not initiate new positions. This might be intended to be an orderly liquidation of the firm or simply a way to buy time for the investigation to play out. We’ll have to wait to see what the National Bank comes up with. I don’t expect any quick answers. As we know, the Orbán government is skilled in dragging things out.