Hungary's Top Court Strikes Down Brokerage Compensation LawBy
Some clauses of disputed law discriminatory, court says
Compensation may still be awarded if lawmakers amend bill
Hungary’s Constitutional Court scrapped parts of a law offering compensation for clients of failed brokerage Quaestor, which had become one of the main points of contention in disputes between lenders and the government. Bank shares jumped.
The judges invalidated clauses in the bill which they said discriminated among brokerage clients, according to the ruling posted on its website on Tuesday. The manner in which the legislation forced financial institutions to take part in covering the compensation costs also breached the constitution, it said. Lawmakers can still pass a law approving amendments in line with the ruling, the court said.
The verdict will force the government to redraft a bill which had threatened to reverse a thaw in relations this year between Prime Minister Viktor Orban’s cabinet and lenders including OTP Bank Nyrt., Hungary’s largest. Erste Group Bank AG said earlier this month that it would walk out of an agreement on selling a stake in its unit to the state unless the Quaestor case was resolved "amicably" and Orban made good on his pledge to reduce one of the highest bank tax burdens in Europe.
“The decision has positive overtones for OTP shares since the lender may be responsible for about 40 percent of payments” for compensating brokerage clients, Monika Kiss, head of research at Equilor Befektetesi Zrt. brokerage in Budapest, said in an e-mail.
The cabinet will discuss the case on Wednesday and will meet the demands set by the court, government spokesman Zoltan Kovacs told reporters in Budapest.
OTP jumped 3.1 percent, the most since Oct. 9, to 5,771 forint by 2:26 p.m. in Budapest. OTP has surged 41 percent since the government’s deal with lenders.
The cabinet has passed legislation to lower the bank tax from next year and has resisted calls from the central bank to make the reduction conditional on higher lending. Making banking policy more predictable is also seen as a way for Hungary to improve its credit ranking, which is below investment grade at all three major rating companies.
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