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Ex-Minister Hudek brings VÚB clout, controversy

Slovak and foreign financial analysts in Slovakia have nothing positive to say about former Interior Minister Ľudovít Hudek's appointment two months ago to the Board of Directors of Všeobecna Úverova Banka (VÚB), the country's most powerful bank.
"There is only one way to speak of this matter," said a Slovak analyst working for a Western investment firm in Bratislava. "I'm sure the outcome will be completely negative."
VÚB's appointment of Hudek - a member of the leading government party Movement for a Democratic Slovakia (HZDS) who left his ministerial post under fire in September for failing to adequately supervise the police - strengthens the bank's ties with the government, analysts said, but it weakens its reputation with Slovak citizens and its peers in the industry.


Ex-Minister Ľudovít Hudek.
Ján Kuchta

Slovak and foreign financial analysts in Slovakia have nothing positive to say about former Interior Minister Ľudovít Hudek's appointment two months ago to the Board of Directors of Všeobecna Úverova Banka (VÚB), the country's most powerful bank.

"There is only one way to speak of this matter," said a Slovak analyst working for a Western investment firm in Bratislava. "I'm sure the outcome will be completely negative."

VÚB's appointment of Hudek - a member of the leading government party Movement for a Democratic Slovakia (HZDS) who left his ministerial post under fire in September for failing to adequately supervise the police - strengthens the bank's ties with the government, analysts said, but it weakens its reputation with Slovak citizens and its peers in the industry.

HZDS power

"We feel it's just typical for Slovakia," said a source who works for a Western bank in Slovakia. "This is just another way for the bank to have stronger contacts with HZDS. I would imagine that VÚB was simply told that Hudek would be coming there to work. It's well-known that the bank is going to be privatized by the end of this year, and obviously he's politically connected. He's probably in with the group of people who are going to privatize the bank."

While agreeing that Hudek's appointment was politically motivated, a capital market analyst for a leading investment company in Slovakia did not think VÚB's portfolio would change because of it. "If you look at the people sitting on VÚB's Board of Directors, they are all HZDS, so plus or minus one doesn't make any difference."

"It's not as if they need one more guy in there, but I think it's more than that," the Western bank source added. "The ruling party [HZDS] wants to have an ace in the hole for the competition to be VÚB's largest owner. The banks are basically the last big Slovak companies to be privatized, and I just imagine management, political and special interest groups vying for control, with two or three power centers within each group. A lot of greedy people are politically together, but when it comes to taking over a company, they're all going to be in competition."

A capital market analyst for a European investment firm said that VÚB's hiring of Hudek might have paid dividends immediately, perhaps clinching the bank's recent deal with the government to be the lead financer in an ambitious highway construction project that would link Slovakia with routes criss-crossing Europe, a deal the source described as "something other banks have been trying to get." VÚB sub-contracted with four other Slovak banks to provide a 2 billion Sk loan for the project, scheduled to be completed in 2005. "VÚB can be an arranger in deals like this," said the source who requested anonymity. "They can form a syndicate of banks."

Credibility and competitiveness

But the bank's short-term windfall with public works projects and privatization may not offset its longer-term reputation among its industry peers and its competitiveness with retail banks in Slovakia, the sources said.

Other than being removed as minister for not handling the police properly, Hudek is also linked to a taped recording of an alleged conversation the-then Interior Minister had with the director of the Slovak Intelligence Service (SIS), Ivan Lexa, in which the two are reported to have discussed how to cover up the kidnapping of President Michal Kováč's son.

The conversation, real or not, has stained Hudek's reputation and that of his new employer, the analyst at the leading investment firm said. "There is no doubt that the telephone call [to Lexa] was a real call, and that this will negatively impact the bank's image."

"It's quite well-known that VÚB's management was started by the coalition," the same source said, adding that depositors now "want to put their money into independent banks without such a strong political background."

"Smaller banks are getting a bigger piece of the pie," the source continued, giving evidence. "Tatra Banka and Ľudova Banka are going ahead much faster than the whole industry on average, in terms of total assets and deposits. Tatra Bank's assets have almost doubled in the last two years, while [those of] bigger banks are stagnating."

"The analogy of the pie is correct," agreed the Western bank source. "A lot of smaller banks, Istrobanka and Ľudova Banka and other regional banks have grown rapidly at the bigger banks' expense. Smaller banks are taking more, expanding faster, [and their] balance sheets are growing faster. VÚB has 150 billion Sk ($5 billion) in assets [but] with minimal growth in their balance sheets."

VÚB is the credit leader, sporting a loan portfolio valued at over 112 billion Sk ($3.7 billion), making it the guarantor of over 30 percent of all loans in Slovakia.

"A lot of people respect VÚB because of their balance sheet, but they also know that VÚB has lots of problems," said the Western bank source who regularly communicates with financial insititutions abroad. "They're big; when they sneeze, everybody else catches a cold. On the other hand, the sophistication of their staff and services could not be lower. The reason they get any recognition at all is the size of their portfolio."

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