By Marton Dunai
BUDAPEST (Reuters) - Hungary's government is investigating the business interests of Zoltan Speder, chairman of second biggest listed bank FHB (BU:FHBK), as it tries to loosen the billionaire's influence over its savings bank sector.
Prime Minister Viktor Orban has used regulation and the nationalisation of several major banks to tighten his control on banks since coming to power in 2010. The government has encouraged wealthy Hungarian businessmen like Speder to expand in the banking sector as it works to reduce foreign ownership.
However, government support for Speder halted abruptly last week when regulatory fines and changes to the law blocked FHB's growth plans.
FHB, where Speder is the biggest owner, is a member of Hungary's Savings and Loan Integration Association (SZHISZ). FHB also holds a direct stake in Takarekbank, the central institution of the savings network: 90 small local banks that primarily cater to local depositors and small businesses.
Savings banks are one important avenue for Orban to secure more than 50 percent of the bank sector in Hungarian hands, part of a maverick economic policy that has earned him criticism from the European Union and followers in countries such as Poland.
Including FHB, the savings sector has a 9.1 percent market share by total assets, with about 1,500 branch offices and 1 million customers, according to data on its web site.
Other parts of the banking industry had complained that FHB was enjoying tax breaks and other benefits that the government affords to savings and loans banks, even though FHB is a classic commercial retail lender.
On June 9, police raided FHB's office and some of Speder's other business interests such as the Hungarian Postal Service. His media company was also hit by a tax probe, and government-friendly media published reports sharply critical of Speder.
FHB has said in a statement that it operates lawfully, in compliance with all regulations, and that the changes would not affect its business.
"The Banking Group is not about to change its strategy and operation," it said in a statement to the stock exchange on June 10.
Speder could not be reached through his spokesman for comment.
The reason and the timing of those moves was unclear, but analysts and media commentators suspect Speder, once close to Orban, fell out of favour with the premier.
"We see the execution of an oligarch in a system that fundamentally builds on oligarchs," Political Capital analyst Peter Kreko told Reuters. "It is meant as a message... The ultimate power rests with Orban."
Orban told national news agency MTI that he believes the savings and loan banks sector, which he wants to become a larger part of the banking industry, needs a major overhaul.
"A reorganised savings and loan system that clarifies the opaque financial processes of preceding years and has proper financial background and professional management forms a natural part of the new Hungarian banking system," Orban said.
The raids on Speder's businesses were part of an ongoing investigation, police said in a statement. The tax authority declined to answer questions about the investigation.
FHB shares traded at 518 forints late on Friday, down a third from 686 forints on Monday and the lowest level since 2014.
"PARASITES"
FHB joined the savings and loan umbrella group last year and built up an indirect holding in Takarekbank, which operates as the central bank for Hungary's 90 small local savings banks.
Members of the umbrella group enjoyed tax breaks, capital guarantees and some independence from the market regulator, the National Bank of Hungary.
The Chairman of the Hungarian Bank Association, Mihaly Patai told Economy Minister Mihaly Varga in a May 26 letter that FHB benefited from those market advantages unfairly because it was a classic retail bank, not a savings and loan bank.
"The savings and loan integration must not extend to banks with no savings and loan history," Patai wrote according to a copy of the letter obtained by Reuters.
Sandor Demjan, the chairman of the National Savings and Loan Association, a rival business group, accused FHB of using its interest in Takarekbank to grow its profits at the expense of other savings banks.
"Zoltan Speder and his business associates have woven a web of companies around the savings and loan sector and feed on its resources like parasites," Demjan wrote in a letter to Orban.
Neither FHB nor Speder reacted to Demjan's letter.
Orban told MTI on June 6 that he would heed Demjan's call to extend regulatory oversight and probe Speder's network.
Within hours the government submitted the legal amendments that weakened the independence of savings banks from Hungary's central bank, reducing the influence of Takarekbank in the sector. Parliament passed them the next day and FHB was also hit with a fine for market manipulation.