The European Commission is investigating a complaint by Hungary’s biggest bank OTP that rival FHB has benefited from illegal state aid.
The probe will not be welcomed by the government, which has been trying to mend ties with the banking sector after years of harsh treatment. Ever since it brokered a peace deal
nearly a year ago, Budapest has been trying to persuade the banks that it is serious about relieving the pressure on them in order to boost lending in an economy that is slowing. The banks, however, remain wary.
According to OTP’s complaint – filed with the commission last year reports Reuters, referring to obtained documents – mortgage lender FHB was the main beneficiary of HUF150bn (€477mn) of taxpayers' money. The OTP claim appears to centre on a controversial deal
in 2014 in which FHB sold assets to state-owned Magyar Posta at an inflated price, and then repurchased a majority stake in Takarekbank - the umbrella for the country's savings cooperatives - at a discount, just months after it was nationalised.
OTP, which confirmed it has sent the complaint, also alleges FHB and other members of the Integration Association of Cooperative Lenders (SZHISZ) benefited from a HUF136bn state capital injection that it claims was illegal state aid. SZHISZ is a vehicle set up to oversee the savings bank sector and operator Takarekbank in 2013 – with a former FHB executive at its head. FHB joined SZHISZ last year.
FHB, whose biggest shareholder and chairman is oligarch Zoltan Speder, denies the allegations. It said the sale to Magyar Posta was overseen by an auditor, but declined to comment on the SZHISZ capital injection. A spokesman for the government in Budapest confirmed the European Commission's investigation, saying that it has already answered initial questions about OTP's complaints.
The complaint could be seen as confirmation that OTP has burnt its bridges with the Fidesz government, with which it was close before falling out over the ongoing pressure on the banking sector. Hungary's biggest bank has notably abandoned a planned acquisitions drive in its home market, and M&A activity has been limited to small targets in the neighbourhood.
Fidesz is unlikely to look kindly on the move, as it not only casts more doubt on the banking sector, but also rekindles a case that appears to support accusations that policy and state deals are pitched to support friendly oligarchs.
State development bank MFB and Magyar Posta announced in March 2014 an agreement to sell 54.8% in Takarekbank for HUF9bn to Magyar Takarek. FHB had bought a 25% stake in Magyar Takarek three days before the close of the bid process. The conditions on the tender meant it only attracted just one bid, while the government classified it as a strategic deal, preventing regulators from investigating.
The deal meant Takarekbank was essentially nationalised and re-privatised within the space of just over a year. The operator of the savings bank network had been earmarked as a state vehicle to help fill the lending void created by Fidesz' tough policies on commercial banks for a year or two ahead of its purchase by MFB from Germany's DZ Bank in late 2012. That deal was exempted from approval by the competition authorities by the state, and the price was not disclosed.
Former FHB executive Tamas Vojnits was then appointed to develop a strategy for streamlining the services of Hungary’s savings cooperatives. A host of others connected to FHB were also involved in forming SZHISZ and a scheme to hand the state a majority in Takarekbank, the Budapest Beacon claims.
During the nationalisation, the government injected over HUF130bn into the savings bank network, apparently to help prepare it for its role in expanding lending. Takarekbank boasts by far the biggest branch network in the country, but no more than 5% of the market. Magyar Takarek said as it bought the business that its aim was to make Takarekbank the leading financial service provider in Hungary.