On Friday the Corvinus International Investment Fund announced that it had completed its purchase of the Budapest Bank for an undisclosed amount. The purchase was financed with a loan from Corvinus’ owner, the state-owned Hungarian Development Bank. The Hungarian state is acting as guarantor in the amount of USD 700 million.
According to a joint statement issued by Corvinus and MFB Zrt., the Budapest Bank is a “well organized, well capitalized, profitable commercial bank” with over 100 branch offices.
According to its latest consolidated annual balance sheet the bank has total assets of HUF 905.3 billion and realized after-tax profits of HUF 14 billion in 2013.
Corvinus acquired all 19,345,945 shares in the bank from GE Capital Global Financial Holdings Inc.. The original government decision providing for the acquisition of the bank classified it as an investment of “national strategic significance”, thereby obviating the need for Economic Competition Authority approval.
The latest in a series of government bank acquisitions intended to increase “Hungarian ownership” of banks doing business in Hungary to over 50 percent, Minister for National Economy Mihály Varga has announced the government’s intention to re-privatize the Budapest Bank and the Hungarian Trade Bank (MKB) within three years.
MKB is currently being reorganized by the Hungarian National Bank at an estimated cost to Hungarian taxpayers of EUR 700-800 million. At a joint press conference held with central bank governor Gyorgy Matolcsy in December just two weeks after Minister Varga announced the pending purchase of the Budapest Bank, Prime Minister Viktor Orbán announced that governments are not suited to run banks and should only acquire them in order to reorganize them. In light of this statement, it is difficult to understand why Hungary went through with its purchase of the Budapest Bank.
Corvinus International Investment Fund Zrt.
According to the joint statement, Corvinus Zrt. has more than a decade’s experience in international finance and managing investments. “Corvinus Zrt. is an important member of the renewed and strengthened MFB Group, whose ownership rights are exercised by the MFB,” according to the statement.
However, a review of Corvinus’ history calls into question whether its “experience in international finance and managing investments” qualifies it to run a commercial bank.
The company’s legal predecessor, Corvinus Rt., was established in 1997 by the Hungarian Development Bank (MFB), the Ministry of Economics, the National Technical Development Committee, the Hungarian Export-Import Bank Rt. and the Hungarian Export Credit Insurer Rt., for the purpose of supporting Hungarian investment abroad in the form of 5-10 year loans. Initially capitalized at HUF 1 billion (USD 5.5 million), its registered capital increased fifteenfold over the next ten years, during which time MFB became the sole owner.
Renamed the Corvinus Támogatásközvetitő Zrt. (Corvinus Grant Broker) in 2007 and the Corvinus Támogatásközvetitő és Tőkebefektetési Zrt. (Corvinus Grant Broker and Capital Investor) in 2010, the company managed and subsequently took over the assets of the former Új Kézfogás Közalapítvány (New Handshake Public Foundation) in 2007.
Between 2009 and 2011 its activities consisted of awarding non-refundable grants to micro- and medium-sized companies in areas outside Hungary where Hungarians are living.
In 2010 Corvinus Zrt.’s state grant brokerage activity was transferred to the Gábor Bethlen fund. At the end of 2012 the government decreed that from that time forward Corvinus Zrt. was to undertake capital investment, primarily in Central and Eastern Europe, with the necessary funds being provided by its owners.