Hungary to purchase Budapest Bank for undisclosed amount

December 5, 2014

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The government of Hungary signed a pre-contract to purchase the Budapest Bank from GE Capital on Thursday for an undisclosed amount.  With total assets of HUF 883 billion, loans of HUF 550.1 bn and deposits of 472,9 bn in 2013, the Budapest Bank is the smallest of Hungary’s major banks.

Unlike a number of foreign-owned banks as of late, the Budapest Bank has operated consistently in the black since being privatized in December 1995 after a massive government bailout following a string of bad loans under former CEO Gábor Prinz.  Although profits fell steadily between 2007 and 2011, the bank posted healthy earnings in 2012 and 2013 despite sectoral taxes stripping it of nearly a third of its pre-tax profits.

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The deal was announced on Thursday by Minister for National Economy Mihály Varga at an extraordinary press conference held at parliament.  The bank is to be acquired by the Corvinus Befektetési Zrt. with financing provided by Hungarian Development Bank (MFB).  It remains to be seen whether the bank is to be merged with the Hungarian Trade Bank (MKB) nationalized earlier this year.

According to Varga the final price will be determined over the next few weeks pending the outcome of a due diligence report.  The transaction will be completed by the end of June 2015.

Varga said the nationalization of the bank meant “better service for the bank’s clients” and that it would “strengthen competition among the banks”.  He also said the government’s plan was to reprivatize the bank within a couple of years.  The minister did not say whether a future privatization would result in worse service for the bank’s clients and a weakening of competition among banks.  (Needless to say, nobody attending the press conference thought to ask such an obvious question.)

Varga said increasing local ownership of the banking sector “is not an objective but a means to enhancing economic performance and boosting employment.”  He reiterated Prime Minister Viktor Orbán’s staunch belief that “the banking sector needs to be majority-owned by Hungarians” but added that “the exact ratio is not set in stone”.

The European Commission recently warned in its sixth post-program surveillance mission on Hungary that “a substantial state ownership in the banking sector has the potential to expose public finances to a contingent liability, as evidenced during the recent financial crisis.”

Corvinus Befektetési Zrt.

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., supposedly 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 fifteen fold over the next ten years, over the course of which 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 transfered 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.

References:

http://www.portfolio.hu/en/economy/hungary_signs_deal_to_buy_budapest_bank_from_general_electric.28800.html

http://corvinus.hu/rolunk/cegbemutatas/