The Institute for Works of Religion managed last month to offload one of its most troublesome investments — a major stake in a landmark Budapest property.
The building, the historic 1905 Exchange Palace, was at the center of a marathon legal battle between the IOR and its investment partners, with the Vatican bank making repeated efforts to sell out of the deal — including by Vatican approaches to the Hungarian government for a bailout.
Last month, the development was bought by a company owned by the son-in-law of Hungarian prime minister, Victor Orban, in a deal estimated to be worth some 50 million euros.
If that figure is accurate, the bank may have managed to exit a long-running scandal and escape spiraling losses — but the deal could also mean that owes an unexpected and ironic thank you to the Vatican’s Secretariat of State.
—
The IOR’s involvement in the Exchange Palace development dates back to the final days of Pope Benedict XVI’s pontificate, and has since become one of the longest-running financial sagas in Vatican financial news, alongside the Secretariat of State’s infamous London property deal.
The bank acquired a major stake in the building and development project in 2013 through its investment in the Futura-Kappa Fund, which was created as an investment vehicle for the project to refurbish and sell the marquee building in the Hungarian capital. But the deal became mired in legal controversy.
The Vatican bank agreed to make a total investment of 41 million euros in the fund, just weeks before the resignation of Benedict XVI.
But after the election of Pope Francis, and a subsequent overhaul of the IOR’s leadership and investment-making policies, the bank revisited its interest in the scheme. Having already delivered 17 million euros of its agreed investment, withheld the remaining 24 million euros, triggering a decade-long legal battle with fund managers.
Eventually, the sprawling series of lawsuits connected to the fund saw the IOR and several companies registered in Malta and Luxembourg file suit against each other.
The Vatican bank alleged that its investments were losing money and being handled inappropriately, and fund managers insisted that the IOR was reneging on its contractual obligations.
In the bank’s own lawsuits, the IOR claimed that its investment committee was misled by the then-directors of Futura Investment Management, Alberto Matta and Girolamo Stabile, about the terms of the deal, which saw the Futura-Kappa Fund acquire 32 million euro of bad debt owed by the company which owned Budapest building, which Futura-Kappa converted into an 86% ownership stake in the company.
With the project tied up in overlapping legal proceedings, The Pillar previously reported that an independent law firm had been acting to broker a resolution for both sides, and find investors to assume the IOR’s stake in the fund.
According to local media reports, the fund acquired the building on Dec. 17 for an undisclosed sum, estimated to be 50 million euros.
Given that the Futura Fund initially agreed a total investment of 41 million from the IOR for the project, and the fund itself held an 87% stake in the building project after acquiring 32 million euro of bad debt owed by the Canadian company which owned Budapest building, 50 million for the entire project would likely represent a modestly loss-making price for all concerned in the sale.
However, it likely represents a win for the IOR’s managers to see the bank walk finally away from the project without losing the tens of millions it had tied up in the investment and legal processes — they have been trying to extricate the institution from the deal for a decade.
The IOR’s decision to pull out of the Budapest deal came almost immediately after it was first agreed.
Following his election in 2013, Pope Francis appointed a new president of the bank’s board of superintendents, Ernst von Freyberg, who was charged with cleaning up the bank’s investments and practices after a series of scandals.
Freyberg was succeeded as head of the IOR in 2014 by Jean-Baptise de Franssu. Since that time, the IOR has undergone a series of internal financial reforms aimed at enhancing the bank’s credibility and compliance with international standards.
Such has been the progress at restoring the IOR’s reputation and profitability that the bank is now widely regarded as the most trustworthy Vatican financial institution, with a clean bill of regulatory health and a steady return on its business dealings.
The December sale will certainly be considered by many at the bank as a disaster averted, especially in comparison to the Secretariat of State’s ill-fated investment in a London property in a deal that began at about the same time and on which they eventually lost more than 100 million euros, and because of which nine people were handed jail terms by a Vatican City court.
But many at the IOR might also see a touch of irony in the Secretariat of State’s likely role in clearing the way for the sale.
Alongside the work of the independent law firm to find a buyer for the project, The Pillar reported in 2021 that officers from the IOR and officials at the Vatican’s Secretariat of State made a coordinated pitch to the Hungarian government, asking it to consider taking over the development, and citing the building’s landmark status in the national capital.
Those approaches coincided with a visit by Pope Francis to Hungary, which a Vatican official told The Pillar was “not exactly deliberate, and not exactly coincidental.”
Nothing at the time came of the pitch. But three years later — in December 2024 — the building was acquired by Granit Fund Management, which is owned by István Tiborcz, the son-in-law of Prime Minister Orban.
Reporting by The Tablet magazine this month noted that the sale of the building would have required government approval and highlighted what it called a pattern of the government waiving pre-emption rights on landmark properties in deals involving Tiborcz and his wife, Ráhel Orbán, and a 2017 EU anti-corruption report which found “serious irregularities” and “conflicts of interest” in some of Tiborcz’s deals.
Tiborcz’s companies have built a portfolio of lucrative business interests, including top real estate properties across Hungary and Austria, including hotels, villas, and ski hotels.
If the Hungarian government played a formal or informal role in helping the sale go through — or even if Orban quietly encouraged his son-in-law to take an interest in the project — the IOR likely owes at least some thanks to the Vatican’s diplomatic department which, in the past, has been suspected of blocking the bank’s efforts to get out of the project.
In his published “Prison Journal” diaries, Cardinal George Pell, former prefect of the Secretariat for the Economy, suggested that a solution to the IOR’s dispute with Futura had been reached in 2017, but had been spiked without any apparent rationale.
In a Dec. 22, 2019 diary entry, Pell wrote that “the IOR authorities had negotiated a settlement of this dispute, which was ready for signature and execution, when this was blocked by the Vatican authorities.”
“This decision was certainly wrong,” Pell wrote, “and was perhaps the result of hypocritical incompetence; but it is hard to shake off the suspicion that the forces of darkness were at work for their nefarious purposes.”
The IOR’s governance is overseen by a cardinals’ commission. In 2017, the president of the commission was Cardinal Pietro Parolin, Vatican Secretary of State.
But, while the Vatican Secretary had customarily led that commission, Pope Francis removed Parolin from the IOR’s board of cardinal overseers in 2019, breaking with long-standing Vatican tradition in the wake of the London property scandal, and with the Secretariat of State under criminal investigation by Vatican prosecutors.
The possibility that the IOR might owe the Secretariat of State a vote of thanks for the successful conclusion of its Budapest property saga would be even more ironic, given it was the IOR’s leadership who reported the secretariat to Vatican prosecutors, triggering the financial crimes investigation and trial.
Editor’s note: This analysis originally referred to Victor Orban as president, not prime minister, of Hungary. The Pillar regrets the error.