Hungary’s Viktor Orbán and his ‘superbank’

This is an audio transcript of the FT News Briefing podcast episode: Hungary’s Viktor Orbán and his ‘superbank’

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, June 1st. And this is your FT News Briefing.

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The head of EY’s US operations is leaving. Now we have some clues about why. German police raided a big asset manager over allegations of greenwashing. We spoke to the executive who blew the whistle on DWS.

Desiree Fixler
Today ESG can mean everything and it can mean absolutely nothing.

Marc Filippino
And we’ll find out about a bank merger in Hungary that will mean more power for autocratic Prime Minister Viktor Orbán. I’m Marc Filippino and here’s the news you need to start your day.

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Sources tell the FT that EY’s US boss Kelly Grier left the Big Four accounting firm after a dispute among executives. Grier is the first woman to lead EY in the US. The FT’s accountancy correspondent Michael O’Dwyer says Grier announced her departure after clashing with EY’s global boss over how much power the US business should have over the global firm.

Michael O’Dwyer
EY, like the other Big Four firms, is a global business, but it’s actually structured as many, many individual national member firms, each with their own interests. But 40 per cent of the revenues, of its $40bn annual revenues, are out of the US. So there’s an outsized influence already in the US and there’s a feeling from Grier, according to the people we’ve spoken to, that it should have a greater say. There was also a disagreement between the pair about how much money that US firms should have to pay into the centre.

Marc Filippino
This high level departure comes as EY is looking at a public listing or partial sale of its global advisory business to separate its consulting work from its auditing business.

Michael O’Dwyer
In recent years, it’s been huge pressure on the firms to avoid perceived conflicts between the two businesses. So auditors are supposed to be challenging company management, while consultants are generally predisposed towards helping company management essentially and wanting to win more fees. And so that can generate a conflict where the auditors may find it difficult to do their job. Part of the solution to that has been that consultants are barred from doing certain types of work for audit clients, which is a drag on growth. And so part of the rationale is that if you could separate these two businesses, then the consultants might be able to win more work and while the audit arm could continue to do what it does.

Marc Filippino
Michael says Grier’s clash with EY’s global boss isn’t related to this, but it hints at how difficult the corporate split-up could be.

Michael O’Dwyer
If those two people can’t agree on something as fundamental as that, then aligning 13,000 partners around a once in two decades, break-up of the group is going to be somewhat tricky. This is something we already knew about partnerships of this kind, but it really underlines the challenge that awaits for EY if it does decide to go down this path.

Marc Filippino
That’s the FT’s Michael O’Dwyer.

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About 50 German police officers and other authorities paid a surprise visit to Deutsche Bank’s offices in downtown Frankfurt yesterday. They were raiding Deutsche’s asset management subsidiary DWS as part of a probe into greenwashing. That means claiming investments are more environmentally and socially responsible than they actually are. This investigation comes after a former DWS executive claimed the firm wrote a misleading report in 2020 about investments made using environmental, social and governance criteria.

Desiree Fixler
Today, ESG can mean everything, and it can mean absolutely nothing.

Marc Filippino
That’s the executive turned whistleblower, Desiree Fixler. Here’s what she says she discovered soon after DWS hired her as its global head of sustainability.

Desiree Fixler
So I pulled a bunch of these ESG reports and I could immediately see that something was wrong. Wirecard through the end of June 2020. So this is a time where its CEO was being arrested and the company filed for insolvency. DWS had assigned Wirecard a ‘B’ — the second highest ESG rating — and this report cited the great governance and great business ethics of the company.

Marc Filippino
Fixler says she found systemic issues with how DWS was reporting its ESG investments and DWS did, to its credit, change its criteria after Fixler complained. The following year, it reported 75 per cent fewer ESG assets. Fixler says lack of accountability has a real impact.

Desiree Fixler
There’s so much irrational exuberance about ESG and continued propaganda from DWS on how wonderful the firm is on ESG. And I just felt, you know, this kind of green bubble needs to be popped, otherwise we’re not gonna be able to address our global challenges and climate crisis, right? Because, you know, if we have too much greenwashing, well-intentioned money is just going to be siphoned off and rerouted to portfolios and to strategies that have no impact. We need to get this right.

Marc Filippino
That’s former DWS executive turned whistleblower, Desiree Fixler. DWS said in a statement yesterday that it has co-operated fully with all relevant regulators and authorities on this matter and will continue to do so.

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Hungary’s prime minister Viktor Orbán became Europe’s longest-serving government leader this year. In April, he won his fourth straight landslide election. But Orbán doesn’t just want political power. He’s creating a “superbank” run by people in his inner circle.

Marton Dunai
Orbán has coveted influence in the banking sector for about a decade now or more.

Marc Filippino
That’s our correspondent in Budapest, Marton Dunai. I spoke to him about this new big lender, which will be formed by merging three existing private banks.

Marton Dunai
These are legacy banks that have been in Hungary for a long time and were privatised first by foreign companies and then renationalised in the last decade and then reprivatised again to people friendly to Orbán. So they, all of them have large client bases, you know, several tens of thousands of people, lots of deposits, all the classic bank financing stuff except in the past few years, they began to develop a more intense relationship with businesses linked to people close to Orbán.

Marc Filippino
Marton, the government says this superbank will make Hungary’s banking system more secure and efficient. Wouldn’t that be a benefit to the public?

Marton Dunai
They want it to create a single, large institution which can contribute meaningfully to lending to projects small and large. Once the merger is completed, will be easily the second-largest bank in Hungary. So that doesn’t just happen by having Orbán’s friends as your clients. It’s going to serve the general public at large. But on that basis, it will also serve the construction and gasification, or of Orbán’s special economic model, which he termed back in 2010. When he came back to power, he termed the system of national co-operation, which was meant as sort of a patriotic co-operation between state and the private sector, but later came to really cover this special world in which Orbán and his associates control a huge chunk of Hungary’s economy.

Marc Filippino
Now, how specifically with this new superbank give Orbán more influence?

Marton Dunai
Well, say, for instance, there’s a project that he wants to finance in some way, and it has to be normal bank financing. It cannot be state financing or EU financing. He can use his influence to convince or even force the bank to extend a loan to certain clients. There was one very clear example of this in March, when one of the member banks that is going through the merger process right now extending a loan to the French nationalist presidential candidate Marine Le Pen, which my understanding is based on my conversation with sources, even owners and executives of the bank were reluctant to extend to Le Pen, but Orbán basically made them do it and pushed his bill through.

Marc Filippino
Marton, what do you see as the biggest concerns surrounding this superbank project long-term?

Marton Dunai
Probably the biggest concern is that once, if at some point Orbán loses power, the clients of the superbank may run out of business because their main business is business with the government. So if they run out of business, the bank might in turn be hit if its clients become insolvent. That is not really a near-term prospect. And by the time Orbán faces elections next time in four years' time, people that I’ve spoken to in the banking sector say that the bank holding project, this triple merger, might actually gain enough footing in the economy to be independent of the political cycles. So — and this is not my words, this is the words of the director of Transparency International in Hungary — the process is pretty much irreversible.

Marc Filippino
Marton Dunai is the FT’s South-East Europe correspondent. Thanks, Marton.

Marton Dunai
Thank you so much.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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