The first state-owned Hungarian bank is already in trouble

Great interest preceded a press conference held jointly by Prime Minister Viktor Orbán and György Matolcsy, governor of the Hungarian National Bank (HNB), this morning. What was so important that these two men would have to appear together in public? It had to be something momentous. Well, it was. The newly “nationalized” Magyar Külkereskedemi Bank (MKB) is in serious trouble and the Hungarian National Bank will assume ownership of it and prop it up.

But let’s start at the beginning. The owner of MKB was the Bayerische Landesbank, a Bavarian state-owned bank, which according to a 2012 decision of the European Commission had to give up ownership of its Hungarian affiliate. That decision was in accord with the Orbán government’s wishes because it is Viktor Orbán’s belief that the majority of banks in Hungary must be in Hungarian hands. Negotiations began back in 2012, but the two sides couldn’t agree on a price. At that point the Hungarian government was offering 100 million euros, which BayernLB found unacceptably low because shortly before the Bavarian bank had to sink 300 billion forints into its Hungarian affiliate. Well, by the summer of 2014 MKB was in the red, so the Hungarian government managed to buy the bank for 55 million euros. Moreover, the Bayerische Landesbank was obligated to give another 270 million euros to MKB. This money was considered to be sufficient to cover possible losses over the next few months. At that point government officials were sure that the bank would be profitable by 2016 “at the latest.” They added that the new owner, i.e. the Hungarian state, would not need to provide any additional capital and therefore “the reorganization of MKB will not burden either the state or the taxpayers.” Three months later we learn that MKB’s finances are most likely in shambles.

What happened between September and December? According to one theory, MKB’s troubles are the result of the government decision to force banks to exchange all mortgages in foreign currencies for forint-based ones. That means a hit of about 25% to the banks’ outstanding mortgages. Of course, all banks will incur losses as a result of this government decision, but the private banks will have to take care of their losses themselves. Presumably they have sufficient reserves. In the case of the newly nationalized MKB, on the other hand, it will be the Hungarian government’s problem. And since the Hungarian government’s coffers are pretty much empty, Viktor Orbán turned to Matolcsy and most likely forced him to come up with 300 billion forints to save MKB.

bailout

This rather unusual step was naturally presented to the public in the best light possible. Instead of telling the truth about the financial troubles of the newly acquired bank, the Hungarian public was told that “the government and the Hungarian National Bank agree that [MKB] must become one of the strongest banks of the country.” Thus they implied that the 300 billion forints was not being spent to save the bank from collapse but was necessary seed money to make this bank the best in Hungary. Viktor Orbán stressed that since “the consolidation of MKB will be done by the Hungarian National Bank it will not cost anything to the budget or the Hungarian taxpayers.” Of course, this is a brazen lie because money at the Hungarian central bank is in fact public money.

According to napi.hu, an internet site formed by former journalists of Napi Gazdaság after it was purchased by Századvég, one reason for passing the bank bailout on to the HNB is that this way the government can avoid parliamentary oversight. That may be, but it is unlikely. Orbán does not have to worry about the parliament and its alleged oversight. However, Napi.hu is most likely right when it finds the whole story suspect. After all, before the purchase it was the National Bank that vetted the bank and found everything in order. On the other hand, János Lázár in an interview that appeared in today’s Figyelő contends that MKB was a badly run bank that was “stolen blind” by unnamed persons. Matolcsy now claims that even before the purchase the Hungarian government was aware that the bank’s portfolio “will have to be cleaned.” So, which is the true description of the bank’s financial health? Is it possible that by exaggerating MKB’s losses more money can be siphoned off from the MNB’s reserves for something other than the “consolidation” of MKB?

Both men emphasized the “reorganization” aspect of the deal and said practically nothing about the bank’s financial troubles. They painted a rosy picture of the bank, which after “a 12-18 month reorganization period will be the best bank of our country.” Here Matolcsy admitted that although the bank has an excellent clientele, the percentage of non-performing mortgages is very high. But once the problems are solved MKB will be the “first fair bank” of the country. There has been a lot of talk lately about “fair banks,” which would function under more stringent scrutiny that would provide better protection to consumers.

The Hungarian National Bank announced today’s decision in the following terms: “Following the decisions by the Financial Stability Board, the MNB [Magyar Nemzeti Bank/Hungarian National Bank] has today taken control over MKB Bank and will reorganize the credit institution, including its subsidiaries.” It is worth noting that the press release emphasizes that “the move has taken place within the legal framework provided by European Union Directives and its responsibilities under Hungarian law.” Or again, a little later: “In accordance with European Union Directives and harmonized Hungarian regulations, the MNB will retain control over MKB Group temporarily (probably for a period of maximum one year).” I always become a tad suspicious when I hear from Hungarian officials that the move they just made is in accordance with EU laws. It usually turns out that it is not.

And what is the long-term future of this new nationalized bank? After the state sinks billions of taxpayer money into it, they plan to privatize it. Most likely on the cheap to friends of Fidesz.

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25 comments

  1. We see the Government and the MNB hand in hand embezzle hundreds of billions annually. It can only be done for a few years, before there will not be enough money to embezzle, without breaking the trust in the MKB and the Forint. Sooner or later the European Central Bank will also have a few questions and they start an investigation of the MNB purchasing real estate and donating to Fidesz organizations, which in turn buy Government Securities from the moneys and so on. The Fidesz/KDNP is simply a large group of parasitic rabble and thieves. The French have a good word for this: CANAILLE.

  2. Addressing a man in the old fashion way, was your dignified baron or duke or mister.

    In English, the word honorable will be used as an address.

    Is regular human dignity unimportant in Hungary because of this association to old manners?

    Honor is not a replacement for dignity, while regime after regime robbed our dignity more than our honor.

    Relevant comments will be useful.

  3. I’m not an expert on banks but I know that the Bavarian State Bank (mother of MKB) was involved in several corruption scandals – the way they handled their daughter banks was highly suspicious. Maybe that’s typical for banks run by conservative Christian governments …
    Also there was a big scandal about the Bavarian and Austrian government’s involvement in the Hypo Alpe Adria bank group which had losses of several billion €s – several people even went to jail.
    http://en.wikipedia.org/wiki/Hypo_Group_Alpe_Adria
    And the scandal isn’t over yet …

  4. It is rumoured that the CEO of a well run foreign owned bank was headhunted to lead MKB, while the bank was still under Lázár (although the bank was once planned to be under Varga, actually).

    The story is interesting because this CEO was actually used to be attacked by Fidesz, although fideszniks somehow got to trust him, which is pretty rare with fideszniks.

    Said CEO was to move to MKB as of this Monday, but apparently during the weekend it transpired that MKB was to be transferred under Matolcsy after all, which will mean constant involvement in the bank’s day to day matters (just remember the banking/real estate/pseudo-private foundation transactions Matolcsy concluded in the last couple of months) so our CEO retreated, it seems.

    It also became apparent that MKB will be a cookie jar for the fideszniks (well, we all knew that). From taxpayers’ money MKB will be bailed out (with no oversight whatsoever) and even still performing loans will be ‘forgiven’ for a little kick-back. MKB will be the new Postabank.

    The current plan (never final with Fidesz) is to merge MKB eventually with Budapest Bank (the state will own the bank from the middle of the year) and with at least a third bank as well. Thereby the new merged bank may be a solid competitor to OTP, at least in terms of total assets.

  5. I would like to ask the pro-CIA commenters of this blog (only respond if you consider yourself that way):

    Why do you support the torturing captured prisoners? In some cases the torturing to death of them? And now that the United States has admitted to mass torture including such torture that people die, why are there no investigations?

    Why are there no prosecutions, court cases against the torturers? Is torturing legal in the United States? It is against the Geneva convention is it not? Can a country where torturing is legal be called a democracy?

    Is torture, including torturing to death legal in the United States? If it is not legal why are the criminals who committed it not punished?

    please read this article:

    “The lack of any official condemnation for CIA torture ensures it will happen again

    Instead of trials for those accused of endorsing torture, or a process of accountability for political leaders, we get trials by essay. It’s not enough for a healthy democracy”

    http://www.theguardian.com/commentisfree/2014/dec/19/the-lack-of-any-official-condemnation-for-cia-torture-ensures-it-will-happen-again

  6. questions, I would answer your questions if this blog were about the US, the CIA, international jihadist terror, etc. But it is not.

  7. I do not see the relevance of your line of questions to the discussion at hand. I assume this is meant to show that the U.S. is deeply flawed and therefore U.S. criticism of Hungary is not legitimate. Anyway, see below.

    “I would like to ask the pro-CIA commenters of this blog (only respond if you consider yourself that way):

    Why do you support the torturing captured prisoners? [I do not. Just because a terrible and illegal program was operated under the auspices of and by CIA personnel, does not mean one cannot believe that the CIA can still play an important role in U.S. foreign policy, or that U.S. foreign policy is on the whole more a force for liberty and freedom than not.]

    In some cases the torturing to death of them? And now that the United States has admitted to mass torture including such torture that people die, why are there no investigations? [There were investigations. Why are you writing about this now? You read news reports from the U.S. Senate report on CIA’s role in torture and other coercive interrogation techniques. This is the part of the sordid story for which America can be proud. This part of the story has come out because one arm of one branch the U.S. Government has conducted a detailed review and issued a damning report, which was made public!]

    Why are there no prosecutions, court cases against the torturers? [It is not precluded that there will not be prosecutions. It is however a highly political question, for which it seems the Administration, including the Justice Department is still struggling. In this way, there is some similarity to the South Africa Truth Commissions in lieu of criminal prosecution at the end of the apartheid era.]

    Is torturing legal in the United States? [NO] It is against the Geneva convention is it not? Can a country where torturing is legal be called a democracy? [Yes. As all of us who read this blog should know well, democracies are not perfect, they are just better than all other forms of Government. Evil things happen under democratic systems, and this is especially true when checks and balances in the system are destroyed. Systems that are purely majoritarian with no systemic checks and balances, however, are less democratic and more prone, I believe, to acting in evil ways. The U.S. Government used torture post 9/11 because the public and politicians were scared (irrationally so), and discarded important legal and democratic norms in the face of a perceived national security threat. If you read the actual Torture report, you will understand one of the great failings was the lack of checks and balances and that the CIA undertook a lot of these activities without the controls and supervision that under law it is meant to be subject to. The whole period is a grave black mark for the U.S., for which all Americans should be ashamed. However, the publication of the report and the fact that the there is slowly going to be some accountability is something equally Americans should be thankful for.]

    Is torture, including torturing to death legal in the United States? If it is not legal why are the criminals who committed it not punished?

  8. If torture is the only way or best way to get information from any terrorist and that information can prevent actions which endanger innocent livest, our life, do it, whatever it takes! One innocent life or many always be worth more than the life and/or the suffering of every terrorists who exists.
    Innocent people have full rights as equal value human beings. Terrorist who kill, maim, torture innocent people, people who are NOT soldier, terrorist who blow up buses, kill schoolchildren, (hundreds, like in Pakistan) have NO RIGHTS as human beings, they deserve anything they get, torture and death!
    This in not just because in this issue, I am and the majority of Americans are pro-CIA. All other secret service have divisions that torture, and nobody is better that the terrorists themselves, the North-Koreans, the Chinese and the Russians, just to name a few!
    ======
    If someone sympathizes with terrorists, and their cause, to destroy our way of life and force us to live like theirs, I ask them to pack up and move to their neighborhood, live with them. I am sure they will appreciate the gesture, treat that person like one of their best friends and guests and make sure the new friend will be happy for the rest of his life. This would be the best way to show appreciation for the terrorist’s causes. Also it gives the opportunity to watch live (not just on video) when people’s head is being cut off, or dozens of civilians are being machine gunned down in ditches and women are being raped and tortured, disfigured and killed. Some people like the terrorist way of life. Go for it!

  9. KARL PFEIFFER: Az érték a kapott árúban, szolgáltatásban is mérhető, de emellett a bizalom és az idő függvénye is. Kérem tegye fel pontosan ugyanezt a kérdést egy év múlva, de azt hiszem addigra ¨ön is meg tudja válaszolni a kérdést.

  10. This is not an answer, only something to think about before next time.

    The event I referring to – mindless brutality only for the sake of it – committed by Hungarian police officers, allegedly to get confession.
    You can try and compare the importance, and explain to me, why one is better than the other, and just who is to rightfully draw a moral conclusion.
    (You can find reference on this blog too, search for the tag /izsak/.)

    http://www.xpatloop.com/news/74523

    Preliminarily the perps got appropriate sentences, will see how it will end.

    Details only in Hungarian here:

    http://mno.hu/belfold/izsaki-remtortenet-elete-vegeig-bortonben-ulhet-a-rendor-1263749

  11. The expression “bank robber” has got some new associations regarding Hungary, I guess.

    And I thought for a while that the “Whiskey Robber” was the most famous there around in the profession..!

  12. questions: I would like to ask the pro-CIA commenters of this blog (only respond if you consider yourself that way):

    Apart from sea views when the weather is good, what is there not to like about CIA? From Budapest it’s only a short flight, so in my opinion the airline doesn’t matter much. CIA hosts cheaper companies, there’s no more duty free intra-EU anyway, and transportation to the Centro Storico is mostly shorter & cheaper than from FCO. One exception would be if you’re going to visit your pious cousin in Vatican City, or your hipster friends in Trastevere, because of the FL1 train.

    Hope this helps.

    PS: by the way, I think the rest of your post got inadvertently pasted, as it doesn’t seem to make any sense here.

  13. There will come a time when one of the following–Chicago, Miami, New York, Los Angeles, London, Paris–will suffer a nuclear, suitcase bomb and 2 million will die; 5 million will be horribly injured; and the original location will not be habitable for 500 years.

    THEN….the wailing and recriminations will sound long and unendingly: “We should’ve been more thorough–Terrorists should’ve been tortured…and not only them, but their families as well.

    FOR, in the end, in the balance of terror, what is the life and limb of a few thousand opposite the coming horror of a nuclear explosion that will kill and damage millions…and change the tenor
    of human outlook forever?

    (So, folks, don’t fall prey to Russian disinformation. They do a thousand times worse and the only difference is that we never hear of it.)

  14. Only those who are against the CIA but with Alkotmányvédelmi Hivatal (AH) (Constitution Protection Office), Katonai Nemzetbiztonsági Szolgálat (KNBSZ) (Military National Security Service), Nemzetbiztonsági Szakszolgálat (NBSZ) (Special Service for National Security), NAV needs to answer:
    WHy are you supporting the NAV investigation on those who report NAV crimes? WHy are you supporting NAV not to investigate Fidesz members activities but intimidate citizens who report? WHy do you support that Hungarian police physically harm Hungarians who peacefully demonstrate against Fidesz and corruption? WHy do you support the Fidesz hiring a personal squad made up by convicted killers and football hooligans to intimidate Hungarians who protest against Fidesz?

  15. Karl Pfeifer: Could you kindly answer the following simple question: Why is one € 316.7 Ft worth?

    Answer there is no trust in the Hungarian Government and its policies. Btw the petrol price for one liter 95ron is HUF 334/EUR 1.06. Almost the cheapest in Europe. Why I do not a pounding on their chest.

    I have an other question. Why are these acquisitions by the MNB and other banks now public, just before Christmas, and just after the Russian Crisis.

    It is about timing, but I do not understand why it is happening now, and not next year, and not before.

  16. Questions,

    I do not support the CIA or torture, except in the case of internet trolls. Their torture should be long, painful, and end in castration or the female equivalent. Therefore, don’t let me catch you, whoever you are and whatever rock you crawled out from under.

    I am only mostly joking.

  17. The Tu-Quoque Troll Gambit

    Bravo to Marcel Dé for his brilliant Ciampino send-up of the CIA-questions troll!

    But can we not beseech our other HS regulars who usually post such thoughtful information to reflect a little before falling for such an obvious provocation?

    New or occasional visitors will get the impression that HS is for ranting indiscriminately about every ejnye-ejnye gripe or distraction under the sun if you keep playing into the hands of trolls whose objective is precisely that.

  18. Zabo: You assume, there would only have to be just one? He would get very bored, without a good company from home, to share jokes about their other comrades.

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