The rise and fall of Poland’s once richest man

By Maria Wilczek

As Poles were preparing to greet the New Year, the first unexpected fireworks appeared on the afternoon of 31 December.

Poland’s second-largest bank, the state-owned Pekao, announced that it would buy its beleaguered rival, Idea Bank, after the latter was placed under compulsory restructuring by the state bank guarantee fund.

Idea Bank’s owner, Leszek Czarnecki, immediately threatened to sue, calling the forced takeover a “nationalisation” motivated by a desire for “political revenge” against him.

The decision is the latest blow to Czarnecki’s financial empire. Rising out of the wreckage of the post-communist economy in the late 1980s, his fortune thrived on risky investments and aggressive growth. By 2008, with almost a hundred companies under his belt, he was Poland’s richest person.

Then the tide turned, with a series of scandals and souring relations with those in power seeing the value of his assets melt away. Ambitious plans for international expansion are now being shelved, though Czarnecki himself has now left Poland – reportedly in the boot of a car – to base himself abroad.

Get in and get out strategy

Straight out of university in 1986, the 24-year-old Czarnecki founded a successful underwater engineering company. Just two years later, he already owned the largest fleet of barges and tugs on the Odra River in western Poland – and drove around in what was, during the communist period, the coveted Fiat 126 “Maluch” car.

In 1991, after Poland’s transition to democracy, he launched the first leasing company in Poland, with money from the sale of his river business. A decade later he sold it to French bank Crédit Agricole for 900 million zloty.

It was typical of how Czarnecki built his empire: starting up companies, growing them quickly, and then, without sentiment, selling them off for a hefty profit. In 2016 he sold his four-year-old debt collection company GetBack for 825 million zloty, followed in 2017 by an insurance firm for 910 million zloty as well as development company LC Corp for 500 million zloty.

“What triggered his success is that people came to him with ideas because they knew that he had money and took risks with it. After three months of a honeymoon, he would squeeze them like lemons so that they earned money,” says a banking insider who has worked closely with Czarnecki.

At its height, Czarnecki’s portfolio spanned banks, real-estate and financial brokers, as well as insurance, debt collection, and leasing companies. “When other businesses gave up, he was very consistent. He also chose the right people,” says the senior banker.

Czarnecki applied the same grit in his business ventures as to his extreme sports endeavours. In 2009 he broke the world record for the longest cave dive, covering a distance of 17 km at 72 metres depth in just under 10 hours – beating the record he had himself set in 2005 with a diving partner.

Yet banks have been the crown jewels. Czarnecki founded Idea Bank and Getin Bank (which he later fused with his Noble Bank, catering to well-off clients) and played an aggressive hand to break into the market, several times getting slaps on the wrist from Poland’s competition authority for unfair practices.

As Czarnecki’s business empire reached its peak right before the global financial crisis in 2008, Czarnecki built Poland’s tallest skyscraper at the time, Sky Tower, in his hometown of Wrocław.

The scandals

Many of the factors that drove Czarnecki’s short-term success were the foundations of his later problems. These included the high share of the notorious Swiss franc denominated mortgages widely issued by Getin Noble Bank, and later sales of GetBack bonds by Idea Bank.

“He focused on maximising profits and set very ambitious goals for his managers. That meant aggressive sales of financial products, sometimes without due consideration for the long-term consequences,” said Piotr Sobolewski, a senior banking analyst at the Polityka Insight think tank.

As his financial empire grew to almost a hundred entities, Czarnecki’s control slipped. “In my opinion, he lost some of his vigilance in choosing people, but also in controlling them,” says an insider. “The scale was already so large that some people began to escape his control. The relationship map of the organisation was becoming too large.”

After the Law and Justice (PiS) party came to power in 2015, it tightened regulations on the banking sector and raised taxes and fees on lenders. “PiS began hammering financial businesses,” says an insider, listing the bank tax, higher contributions to the deposit insurance fund and increased capital requirements.

Next came the scandals. In 2018 debt collector GetBack, which Czarnecki had sold off two years earlier, ran into trouble after buying up large portfolios of distressed debt for prices higher than its rivals. The company financed its aggressive growth strategy by issuing short-term bonds, which financial institutions sold to customers with the promise of hefty returns and limited risk.

When Getback went bust, its debt-holders lost 2.5 billion zloty. The bulk of the bonds had been sold by Idea Bank (68%) and some by Getin Noble (6%). Czarnecki fired Idea Bank’s CEO, Jarosław Augustyniak, who was later also charged with breaching banking confidentiality rules and fraud. The bank was fined 17 million zloty for unfair practices.

Then, in late 2018, Czarnecki found himself at the centre of another affair. In November, he claimed that the head of Poland’s financial regulator (KNF), Marek Chrzanowski, solicited a bribe of 40 million zloty in exchange for “supporting” his banks.

Last year, Czarnecki also claimed that PiS’s former spokesman, Adam Hofman – now leading a PR agency – approached him with a suggestion to participate in buying TVN – a public broadcaster critical of the government – in exchange for support for his banks. Hofman says that it was Czarnecki himself who enquired about the potential deal.

Idea Bank’s losses reached 1.9 billion zloty in 2018, a depth unseen in Poland’s banking sector for at least a decade. Czarnecki’s bank was put on a repair plan which included writing down the value of its subsidiaries and readjusting its credit risk and provisions.

As the value of his financial empire melted down, so did the tycoon’s net worth – from an estimated 6.4 billion zloty in 2008, when Forbes ranked him as the richest Pole, down to 13th place with 2.2 billion zloty in 2018.

Ambitious plans of international expansion were also reined in. “He has already sold a bank and a leasing company in Russia, has just obtained permission from the National Bank of Belarus to sell the bank in Belarus, and is in talks with investors to withdraw from Romania,” notes Sobolewski.

In September last year, prosecutors linked Czarnecki to the GetBack case, blaming him personally for the missold bonds. He has dismissed the allegations, which could carry a potential jail term of 15 years, as politically motivated. On 21 December a court rejected a motion to arrest him.

Running out of Ideas

Yet hours before New Year’s Eve came the biggest blow yet. State-owned Pekao Bank announced that it would take over one of Czarnecki’s two banks, Idea, in the largest such forced operation in Poland to date.

The Bank Guarantee Fund (BFG), which engineered the merger, insisted that independent audits of the troubled bank showed that it had a much larger capital shortfall than it had reported, reaching almost half a billion zloty. It cast the takeover as a matter of ensuring stability in the financial system.

If Idea Bank were to go bust, it would cost the BFG 13.8 billion zloty in guaranteed funds for depositors, which accounts for roughly 90% of the fund’s current capital, notes Sobolewski. “Of course, most of this amount would be recovered from the bankruptcy estate, but the process would take years, and before that, banks would have to fill the hole in the fund.”

“This would have hit the profits of banks, already strained by interest rate cuts and fees from court disputes with Swiss franc borrowers, as well as shrinking their buffer against the effects of the coronavirus pandemic,” Sobolewski told Notes from Poland.

Pawel Borys, who heads the Polish Development Fund (PFR), a state-owned financial group, said that Idea Bank’s customers not covered by the BFG’s deposit guarantees – which include high-net-worth individuals and local governments – had avoided losses of two billion zloty. The lender’s reported capital adequacy ratio – a measure of whether the bank has enough of its own capital compared with its credit exposure – currently stands at 2.5%, falling short of the required 10.5%.

But the bank’s owner insists that it was slowly digging itself out of that hole. In the third quarter of the year it churned out a net profit of 5.2 million zloty, and was on course to announce “a historic profit” in its fourth quarter, Czarnecki told TVN on Tuesday night.

He insists that the state swooped in too early. Pekao will now take over all of Idea Bank’s customer loans and deposits, but will not take over responsibility for the bonds issued by debt collector GetBack. The BFG will chip in a subsidy of 193 million zloty to help bridge Idea Bank’s capital gap.

A board member at Idea Bank, Dariusz Filar, has gone further, suggesting that the bank faced “evident obstruction” from the state in its recuperation over the past two years. Filar cities delays to appointing the nominee for CEO, Jerzy Pruski, despite his experience as head of the BFG and vice-president of the National Bank of Poland (NBP), reports Money.pl.

“My own view is that in Poland there is a very strong political tendency to nationalise the banking sector,” said Filar. After PiS came to power in 2015, the state-owned insurer PZU acquired a substantial stake in Alior Bank, a successful private bank, and later bought a controlling stake in Pekao from Italian UniCredit.

A senior insider agrees, telling Notes from Poland that the decision killed two birds with one stone: “putting down the [bank’s] major shareholder for his defiance, but also taking over a bank in the process.”

Czarnecki himself has called the takeover illegal and has threatened legal action. Speaking to Gazeta Wyborcza on Monday, he said it can only be explained as “political revenge” for tarnishing the reputation of KNF under PiS in the corruption scandal of 2018.

“Czarnecki is a symbol of the financial elite that needs to be changed, replaced by people accepted by the government,” wrote Polityka news weekly. Some therefore fear that the takeover of Idea Bank is a prelude to cheaply buying up Czarnecki’s other lender – the much bigger and financially sounder Getin Noble Bank, which also needs a capital boost.

Main image credit: Grzegorz Celejewski/Agencja Gazeta

Maria Wilczek

Maria Wilczek is deputy editor of Notes from Poland. She is a regular writer for The Times, The Economist and Al Jazeera English, and has also featured in Foreign Policy, Politico Europe, The Spectator and Gazeta Wyborcza.