“Reorganization” of MKB to cost Hungarian taxpayers EUR 700-800 million

January 8, 2015


Central bank governor György Matolcsy and prime minister Viktor Orbán announcing the bad news in December.

A bank purchased by the government of Hungary in September for EUR 55 million may end up costing Hungarian taxpayers EUR 700-800 million to “reorganize” according to weekly business news magazine Figyelő.

In September the government acquired the Hungarian Trade Bank (MKB) from BayernLB for a reported EUR 55 million. Prior to that the bank’s previous owners reportedly increased the bank’s capital by some EUR 270 million.

Three weeks ago Hungary central bank governor György Matolcsy and Hungarian Prime Minister Viktor Orbán held a joint press conference to announce that, while there were problems with the MKB’s loan portfolio, the National Bank of Hungary (MNB) intended to extend a “protective net” to MKB and “stand behind it with all the assets of its balance sheet”.

Over the course of the press conference Orbán announced that the government was “not suited to operate banks” and should only own them “for the purpose of reorganizing them”. This was a stunning revelation considering only two weeks earlier Minister for National Economy Mihály Varga announced that Hungary had entered into an agreement to acquire the Budapest Bank from GE Capital for an undisclosed amount.

Only at the end of December did the central bank “announce” on its website that, in fact, it had taken over the ailing bank and ordered its reorganization on December 18.

According to Figyelő, when Hungary paid EUR 55 million for MKB, it effectively bought an obligation to spend EUR 700-800 million reorganizing and recapitalizing the bank. As 444.hu ironically puts it

“MKB was so worth buying that it generates some HUF 400-500 million worth of losses daily”.

The online daily notes that MKB is threatened with pending insolvency, “except now instead of the Bavarians making up the losses, we are making them up”.

The business weekly writes that the government has agreed to pay an extra USD 300 million over its current market value of USD 400 million due to the “synergistic effect” of yet another state-owned bank, despite there being an oversupply of bank branches on the Hungarian market.

The actual price of the bank will not be determined until January or February of 2015.

444.hu concludes that

“The purchase of the two banks will succeed in causing HUF 240 billion worth of losses – roughly ten years worth of internet tax receipts – to the tax payers. And this is not the end as the appetite for buying banks is increasing. Erste, Raiffeisen, CIB, K&H and Unicredit are still on the market, the purchase of any one of which might cause many hundreds of billions of forints in losses.”