The payment of compensation for the victims of the Quaestor broker scandal began in mid-July. This does not mean that the complex story is over and done with. Although the amount of compensation is higher than we ever imagined, there is a resistance forming – besides the banks even the investors are joining in.
The bomb of the broker scandal blew up in March; black sheep in the sector were being uncovered on a weekly basis. The amount of damage was soon estimated to reach EUR 1 billion. There was controversy over whether the Hungarian Financial Supervisory Authority, controlled by the Hungarian National Bank since 2013, had been doing its job properly.
At first it seemed customers of the bonds published by the Quaestor group would need to go empty-handed, because they should have considered the higher risk that goes with the higher expected return. But shortly after, we learned that the government was planning to compensate the enormous damage via special payments collected from all actors in the financial sector.
In mid-April, only a month after the spectacular collapse of Quaestor, law number XXXIX of 2015 setting up a compensation fund was sent to Parliament for debate. The mini-law, which originally contained 15 paragraphs, was not surprisingly challenged by the banks, which were supposed to chip in without their agreement, and it is awaiting the decision of the Constitutional Court.
The hastily patched together legal rule gave the victims one month to hand in their claims to the fund managers. After this deadline passed on June 5, the managers asked for another month to adjudge whether the submitted claims were valid. According to this schedule, the payment of accepted claims has now just begun; however, at present only those below the maximum HUF 6 million.
As the resources of the State Fund for Deposit Guarantees (OBA) and Investor Protector Fund (Beva) are virtually exhausted due to the much smaller dimensioned bankruptcies of brokers, banks and savings co-operations, the actors of the financial market need to provide extra payments to replenish the tight budget. It was exactly this political concept that the banks refused.
However, the victims of the financial violators do not care where the money for their compensation is coming from. They want payments, no matter what the decision of the Constitutional Court might be, meaning what they want is no less than the law enters into force.
Legislation number § 10 section 4 says crisply and clearly that the fund will make a maximum payment of HUF 30 million per investor within 30 days after closing the reconciliation period. In order to express their disagreement, they want to demonstrate. Quite a few of the tricked investors suspect fraud and do not understand why there has to be a maximum of HUF 30 million. In addition, a group of claimants on Buda-Cash, which also collapsed, object that the Quaestor clients are treated better by the law, in a random and unjustified way.
Politics prefers itself
For the average taxpayer amounts of several million forints are something that belong in the land of fantasy, and this is why the Quaestor victims can hardly expect the solidarity of the society in their trouble. Maybe the politicians have expected this, since it looks like nobody is interested in uncovering the facts about the largest broker scandal in the history of modern Hungary.
Even the fact that the Quaestor compensation is being regulated by the law, which excludes any other further appeal by the damaged parties, is alarming. Furthermore, the role of the state in the sudden collapse of the imperium is questionable, since the Ministry of Foreign Affairs and Trade managed to get a billion-scale payment “out of turn” within 24 hours, before Quaestor shut down its offices to the regular customers.
Then there are the “fictive bonds”, a terminology introduced by the finance authority, which is perceived in many different ways by many different people. We are talking about a considerable amount of money, around HUF 150 million – this is the magnitude in which the Quaestor bonds with no authorisation were issued. It can’t be the customer’s responsibility to tell genuine and fictive bonds from one another; this is why there is an authority to step up against fraud.
Considering all this, the political opposition is suggesting that the government is simply trying to win time. The Socialists believe that Fidesz wants to “exhaust” the victims with the systematic delay and fragmentation of the payments, so that they do not even have to pay the minimal legal amount of HUF 6 million.
It’s a fact that the budget is tight but not everyone understands why the National Bank, acting as the supervisory organ, cannot give an advance. After all, they share the blame for what happened, and especially since governor György Matolcsy has been spending billions on foundations, luxury real estate and paintings for months.
The broker scandal left a huge number of questions open. However, if we review the events of the last months we can be sure about one thing, that politics – just as always – prefers itself.
What will be the banks’ payment obligations?
The Hungarian National Bank (MNB) dealt with the payment obligation of the banks in connection with the broker scandal in its recent so-called stability report. Looking at the profit expectations of the sector, the special payment that has to be made in order to replenish the funds of deposit and investor funds OBA and BEVA – which is expected to amount to more than 1% of the equity of the sector – is named as a third risk on top of the declining interest revenue due to the settlement of foreign-currency loans and the continued existence of the special tax on the banking sector.
The OBA has already claimed a temporary loan from the MNB so it can provide com-pensation for damages. The MNB report indicates that the amount of deposits ensured by OBA totals HUF 12,100 billion. The banks are currently paying a fee of HUF 17 bil-lion, which may be raised to a maximum of HUF 24 billion during the year.
In addition to this amount it’s possible that there would be an extraordinary and one-time payment that would put another HUF 24 billion in the cash register of OBA. The brokering companies are hardly paying more than HUF 1 billion to Beva, and accord-ing to the law this could be raised to an annual HUF 8-9 billion; all this in addition to the extraordinary payment, which could double the total amount of the payment, similar to the case of OBA.
Regarding the Quaestor fund, which is treated separately, the banks need to give an advance before they will be compensated from the assets of the Quaestor group or they can deduct the amount from their taxes over time. In conclusion, experts of the National Bank calculate that – by an expected amortisation period of 10-15 years – the banking system won’t have to suffer any damage.
The OBA is supposed to pay out compensation to the clients of the DRB banking group to a total HUF 107 billion from their assets of HUF 13 billion. The Beva assets of HUF 10-11 billion should be enough for the compensation of the Buda-Cash, Hungária Értékpapír and Quaestor clients with investments up to HUF 6 million, which amounts to a total compensation volume of HUF 90-100 billion.
In addition to this the special Quaestor fund will receive HUF 100 billion, which will serve the further compensation of Quaestor clients with investments up to HUF 30 mil-lion.
Summing up all this, the three funds will provide a total of about HUF 300 billion for payments. In case the banks will double their payments towards OBA and Beva by 2016 from the present HUF 17 billion to HUF 33 billion, and keep this contribution level until 2025, it will be possible to stabilise the financial situation of the funds “at a normal level”, according to the view of the MNB.