NOTE: THE LATEST DEVELOPMENTS TO THIS STORY CAN BE FOUND HERE.
Budapest standby police raided the offices of one of Hungary’s oldest financial brokerage houses Monday evening after the National Bank (MNB) reported the financial brokerage house to Budapest magistrate’s office on suspicion of fraud. It did so after an investigation initiated by MNB’s Financial Stability Council determined that serious abuses had taken place, and that as much as HUF 100 billion (USD 371 million) of assets could not be accounted for. Police also interviewed a number of company managers, according to daily news site index.hu.
Hungary’s central bank issued the following statement earlier today:
“The MNB is presently conducting a thorough audit of the financial institution. The bank commissioner appointed by the state-owned Financial Stability and Receiver Nkft. and other limiting measures will remain in place until a final decision is issued for a maximum of one year. The limit on repayment of deposits and other sources shall remain valid for a maximum of 90 days. The DRB Bank group does not represent a threat to the Hungarian financial system either in terms of size or activity.”
Prior to making the announcement, MNB suspended Buda-Cash’s seat on the Budapest Stock Exchange, as well as that of Opimus Nyrt. which is owned by the same group of investors.
According to the Buda-Cash website, the brokerage firm is no longer open for business and is neither receiving nor initiating bank transfers. The website instructs the company’s 10,000-15,000 customers to direct their questions in writing by email to the MNB-appointed commissioner.
This morning some 20-30 Buda-Cash customers reportedly arrived at the company’s Budapest office in the hope of withdrawing their money. However, as the building had been sealed off, they were unable to enter.
MNB press conference
At a press conference held at 11 am on Tuesday, MNB deputy chairman Laszlo Windisch said Buda-Cash was suspected of having falsified financial data over a 15-year period. He announced that supervisors had been appointed to oversee not only the financial brokerage firm but the DRB group of four regional savings and loans owned by the same group of investors. Windisch announced that Broker-Cash customers may withdraw up to HUF 1 million (USD 3,700) from the four banks comprising the DRB Bank group, but that future reimbursement would only be forthcoming upon the conclusion of the investigation.
DRB Bank group
The four banks comprising the DRB Bank group are Miskolc-based Észak-magyarország Regionális Bank Zrt. (ERB), Herceghalom-based Budai Regionális Bank Zrt. (BRB), Kaposvár-based Dél-Dunántúli Takarék Bank Zrt. (DTB) and the Siklós-based Dél-Dunántúli Regionális Bank Zrt. (DRB).
The four banks operate 112 branches, serve 120,000 clients, and manage HUF 220 billion (USD 815 million) in assets. Although MNB has yet to accuse the four banks of any improprieties, they have come under suspicion because of their ownership. As of the end of 2013 the four banks had HUF 188.8 billion in assets under management, a combined loan portfolio of HUF 79.5 billion (USD 300 million), total deposits of HUF 120.4 billion (USD 440 million) and registered capital of HUF 12.2 billion (USD 45 million). With the exception of BRB, which posted modest profits of HUF 10 million (USD 37,000) in 2013, all were loss making in 2013. As a group DRB Bank group suffered losses of HUF 154 million (USD 570,000) in 2013.
Although financial institutions in Hungary are required to undergo a complete audit every five years, the 2010 audit reportedly revealed no irregularities.
The Swiss connection
Portfolio.hu notes that in January the Swiss central bank allowed the franc to strengthen considerably virtually overnight against the euro and the dollar. Industry experts believe Buda-Cash was among those most adversely affected, suffering some HUF 8 billion (USD 30 million) in losses which it dutifully reported to MNB. It reportedly also took steps at that time to mitigate future losses.
However, according to MNB, the decision to close Buda-Cash down was not related to Swiss franc-related losses.
Buda-Cash Broker House
Buda-Cash Broker House was established in 1995 and has had a seat on the Budapest Stock Exchange ever since. Its holdings include Brókerház Zrt., Buda-Cash Vagyonkezelő Zrt. and BC 2000 Pénzügyi és Tanácsadó Kft. In 2014 it was responsible for 3.93 percent of the turnover of Budapest Stock Exchange, executing trades worth HUF 148 billion (USD 548 million). It was the largest trader in options, brokering some HUF 270 billion (USD 1 billion) of transactions in 2014.
According to official information, Buda-Cash had revenues in 2014 of HUF 3.85 billion (USD 534 million) and after-tax profits of HUF 584 million (USD 2.2 million). The company’s registered capital is HUF 2.66 billion (USD 9.8 million).
Company founder and owner Zoltán Pintér reportedly sold his shares last year to the other members of the board of directors, namely János Gyarmati, Péter Varga, Péter Tölgyesi and Gyula Pál.
BEVA to the rescue
Hungary’s Investor Protection Fund (BEVA) insures private depositors and investors up to EUR 20,000 (USD 22,600). However, neither institutional investors (including local governments) nor the employees of affected companies are covered.
An unnamed BEVA spokesperson told portfolio.hu that it would involve itself in the matter at such time as authorities initiated a liquidation procedure, and only then would it notify affected investors of how to go about recovering their losses.
In Hungary all investors are fully insured up to HUF 1 million (USD 36,000). Above HUF 1 million 90 percent of their deposits are insured up to EUR 20,000. Someone investing EUR 20,000 with Buda-Cash would be insured for EUR 18,327 (USD 21,000).