A couple of days ago George/György Lázár, a frequent contributor to Hungarian- and English-language publications, wrote a witty article in Galamus with the title “Isn’t it odd? Only Hungarian-owned banks go under.” Indeed, Lázár is correct. Since January 2014 ten banks had to be liquidated, and all ten were owned by Hungarians.
The first to bite the dust was the Körmend és Vidéke Takarékszövetkezet, which had to close its doors in January 2014. The Hungarian National Bank fined the bank’s former president and chief operating officer fifteen million forints for his irresponsible handling of the bank’s affairs. Taxpayer money was used to make the bank’s depositors and creditors whole.
A few months later, in June 2014, the largest credit union, the Orgovány és Vidéke Takarékszövetkezet, went bankrupt. Today Imre G., the credit union’s chief operating officer, and two other employees of the bank are in custody.
In August the Alba Takarékszövetkezet lost its right to operate. The bank was woefully short on capital, and the Szövetkezeti Hitelintézetek Integrációs Szervezete (SZHISZ), the supervising authority of the credit unions, found serious irregularities in the everyday running of the bank.
In November the operating license of the Széchenyi István Hitelszövetkezet was withdrawn. The bank had been losing money for years. The regulators told the bank’s managers to raise capital, which, it seems, they were unable to do.
In December the Tisza Takarékszövetkezet had to end its activities after the regulators found serious irregularities in the conduct of the management.
If you think that only Hungarian credit unions have financial problems, you are wrong. The Hungarian National Bank withdrew the operating license of the Széchenyi Kereskedelmi Bank on December 5, 2014, an event that even Bloomberg reported. The owners of the bank were István Töröcskei (51%) and the Hungarian state (49%). Töröcskei’s name cropped up earlier in the case of the Széchenyi István Hitelszövetkezet, at which time certain opposition politicians demanded that he resign his post as head of the Államadósság Kezelő Központ (ÁKK), the office that manages the country’s debt load. At that time, however, Töröcskei convinced his superiors that he had nothing to do with the demise of the credit union, of which he was “only a trustee.”
The Széchenyi Kereskedelmi Bank has a colorful history. It was established in 2008 in the Cayman Islands as SPE Bank, with two billion forints in capital. In 2010 the original owner sold the bank to István Töröcskei and Imre Boros, who changed its name to Helikon Bank and, a month later, to Széchenyi Bank. Imre Boros had worked for years in the Hungarian National Bank during the Kádár regime. After 1990 he became a member of the Magyar Demokrata Fórum (MDF), and since the first Orbán government (1998-2002) was a coalition government, he became minister without portfolio. In 2002, after revelations that he was an agent employed by the secret service of the Kádár regime, he was dismissed from the party. Nowadays, Boros is a weekly participant in a program on the extreme right-wing Echo TV, where he masquerades as an economic expert. I should add that Töröcskei is part owner of Echo TV. In the summer of 2013 the Ministry of National Economy, i.e. the Hungarian state, bought a 49% stake in the bank for three billion forints. A year and a half after the Hungarian government found the investment so enticing, the bank went belly up.
István Töröcskei was a favorite of the current government. Why? Well, it all started back when Töröcskei was part owner of Széchenyi Hitelszövetkezet. He gave a sizable loan to Viktor Orbán to start his football academy in Felcsút. Ever since, Orbán has been supportive of Töröcskei. First, he made sure that he was appointed to head ÁKK, then he allowed him to convert his credit union into a bank before the nationalization of all the credit unions. And he allowed the ministry of national economy to sink three billion forints into Töröcskei’s bank.
On the surface everything seemed all right. The bank was growing rapidly. In addition to the three billion forints from the Hungarian government, the Hungarian National Bank “pumped” fifty billion forints into the Széchenyi Bank in the form of low-interest loans that the bank passed on to its favorite customers, including companies owned by Töröcskei and his business associates. HVG listed a number of such companies in an article published on December 16, 2014, but it was only today that the Hungarian National Bank announced that they have turned to the police to investigate because of the suspicion that the problem at the bank is more than inept management. It may involve criminal activity. Whether Töröcskei ends up in custody, like the chief operating officer of the bankrupt Orgovány és Vidéke Takarékszövetkezet did, we will see, although I doubt it. Töröcskei is far too close to the prime minister to suffer such a disgrace. Orbán is a loyal friend and usually takes care of his own.
The last four banks György Lázár listed are all affiliated with the Buda-Cash Group: ÉRB Észak-magyarországi Regionális Bank, DRB Dél-Dunántúli Regionális Bank, BRB Buda Regionális Bank, and DDB Dél-Dunántúli Takarék Bank. I wrote about them on February 26.
All these bank failures cost Hungarian taxpayers billions and billions of forints. In some cases, the depositors themselves will suffer great losses because their deposits exceeded 30 million forints, the limit the bank law guarantees. During the lean years after 2008 no foreign-owned bank in Hungary was in trouble because the German, Austrian, and Italian banks kept filling the coffers of their affiliates in Hungary. In the case of Hungarian banks, this is not possible. The Hungarian government is on the hook. As we know, the Hungarian State not only bought a 49% stake in Széchenyi Bank but also purchased outright the Bavarian-owned the MKB Bank, which right after the purchase turned out to be in financial trouble. The Hungarian state had to prop up the bank to save its customer deposits.
It is one of Viktor Orbán’s manias that the majority of the banks in Hungary must be in Hungarian hands. Lázár recalls that Fidesz’s parliamentary delegation in early January called upon the government to acquire even more banks because the “foreign banks are dishonest.” Antal Rogán, head of the Fidesz caucus, accused the “Gyurcsány party” of wanting to prevent Hungarian owners from acquiring banks. “Banks in Hungarian hands offer security for Hungarian families,” Rogán claimed. Lázár points out that just the opposite is true. Prudent Hungarians would do well to avoid Hungarian-owned banks and deposit their money in the banks of the “dishonest” foreigners instead.