* Hungarian bank 100 times smaller than takeover target
* Failed bid shows foreign banks resisting pressure to quit
* Few Hungarian players big enough to step in
* Borrowers are hurting now, taxpayers could lose long term
By Gergely Szakacs and Krisztina Than
BUDAPEST, Jan 28 The bank that tried to take
over Raiffeisen's Hungarian operations this month has
a single branch with just two cash desks for customers.
Majority owned by the head of the government debt agency, the
rest of it is in state hands.
Its failed bid to swallow up the foreign lender's 123-branch
operation offers several clues to the future of Prime Minister
Viktor Orban's nationalist economic policy.
First, it is unlikely to be the last such bid; second, state
involvement may be inevitable as there are not many big local
players, third, foreign banks will resist, and fourth, it could
end up hurting the very taxpayers Orban is trying to protect.
Hungary has become deeply unprofitable for most foreign
lenders, partly thanks to taxes aimed at the banks and a
government-imposed relief scheme for borrowers struggling to
repay Swiss franc loans sold to them by banks in better times.
"The government's strategy is to bring the net present value
of foreign bank operations to zero, so it can then be
transferred into local hands," said Peter Attard Montalto at
Central bank Governor Gyorgy Matolcsy, a close ally of
Orban, said recently that four major banks could quit Hungary in
the next 6-18 months and the economy minister has said one or
two foreign banks might be considering leaving.
But Raiffeisen's refusal of the offer by Szechenyi Bank and
the size difference between the two shows the government's
declared aim of having at least half the sector in local hands,
from around 40 percent by assets now, may not be plain sailing.
Even with heavy losses, most foreign banks have ruled out
selling, and there are few local lenders big enough to take them
on. Banks based in Hungary account for about 9 trillion forints
in assets of the 23.4 trillion held by the 10 largest lenders
based on 2012 figures.
"It is difficult to see who would step in after what may be
an uncooperative squeeze out and who could have the capacity,"
said Piroska M. Nagy, an economist at the European Bank for
Reconstruction and Development.
"Some diversification of ownership and funding would be
desirable, but in a business-friendly and co-ordinated way."
STATE HOLDS BACK, FOR NOW
Raiffeisen decided against selling its Hungarian operation
for now after it was offered what sources with knowledge of the
situation called a "knock-down price".
Szechenyi's majority owner Istvan Torocskei, a businessman
appointed in 2011 to head the government debt agency, declined
to comment on the Raiffeisen talks when approached by Reuters in
Budapest on the sidelines of a news conference.
He has told Austrian media "hasty leaks" were part of the
reason why the deal fell through and replied, "God knows", when
asked if something could still happen. Officials at Szechenyi
Bank did not respond to Reuters requests for an interview.
There is no evidence that the government was directly
involved in Szechenyi's failed efforts to take over the
Raiffeisen unit but Budapest does have strong links to the bank,
including a 49 percent ownership stake.
Last week, Economy Minister Mihaly Varga said in response to
a lawmaker that the government did not plan to buy Raiffeisen's
local unit "in the near future." His ministry declined to
comment directly on the failed takeover.
It said in an email it still wanted at least 50 percent of
the banking sector in local hands, adding that it did not aim to
reach this goal based on state ownership. It said the government
should be mindful of taxpayers' money when investing in any
Relative to Raiffeisen's business in Hungary, Szechenyi Bank
is so small it is "invisible to the naked eye," said Peter
Felcsuti, Raiffeisen's chief executive in Hungary for 21 years
until 2011. For it to take over the Raiffeisen's unit would, he
said, not be good for the banking sector.
Raiffeisen's Hungarian unit had assets of $8.3 billion at
the end of June and 123 branches. Szechenyi Bank had $88 million
euros in assets at the end of 2012.
Prior to the 2008 financial crisis, Hungarians scrambled for
loans to buy homes and cars, generating big profits for foreign
banks including Austria's Erste Bank, Italy's
Unicredit and Intesa Sanpaolo and Belgium's
In 2007, the bank sector earned 226.5 billion forints based
on official statistics compared with a pre-tax loss of 149
billion forints in 2011 and 105.5 billion in 2012.
A subsequent slide in the local forint currency as the
global financial crisis hit, has left hundreds of thousands of
Hungarians swamped in debt and the local economy hurting.
The issue has meant that banker bashing has become a popular
Orban has accused the foreign banks of unscrupulous lending
practices and he has been a thorn in their side since winning a
landslide victory in 2010. With elections in April that appear
set to extend his time in power that pressure is unlikely to
Orban imposed Europe's highest bank levy on Hungary's banks
in 2010 and could yet impose a new relief scheme for borrowers.
But his master plan is to shrink the foreign lenders'
presence. He has said a locally-run banking sector would ensure
a better supply of credit to the local economy and reduce its
exposure to sudden capital withdrawals by foreign banks.
But it would also leave taxpayers on the hook for bank
debts, something neighbouring Slovenia is now struggling with
after its state-owned banks got into trouble, leaving it with a
4.8 billion euros bailout bill.
The chief executive of Hungary's largest lender OTP Bank
, said last month it was interested in any bank that
might come up for sale. However, Sandor Csanyi also said the
bank, the largest independent lender in central Europe, would
not strain its balance sheet to do deals.
Raiffeisen Hungary Chief Executive Heinz Wiedner said last
week that major banks were unlikely to leave Hungary in the near
term but this prospect could not be ruled out in the long run.
Erste, Intesa Sanpaolo, UniCredit and KBC have all said they
would stay. Budapest Bank, a unit of G.E. Capital, has
also told Reuters it would not leave.
That would leave as possible targets only Raiffeisen -- and
MKB, a unit of Germany's Bayern LB, which must be
sold under a state aid deal agreed with the European Union.
Raiffeisen's Wiedner said staying was the "right decision"
but a high bank tax and a general anti-bank atmosphere would
keep Hungary an unattractive market in the next few years.
"We are still loss-making, but last year our loss was
significantly lower than a year earlier or before," Wiedner was
quoted as saying in an interview with website portfolio.hu.
But the pressure on the banks from the government, combined
with the European Central Bank (ECB) asset quality review, the
findings of which are due to be published by November, could be
a trigger for some banks to leave, some sources said.
"At the moment they (the government) are looking at what
this ECB review leads to because maybe opportunities will arise
in Hungary even though some banks say now they are not leaving,"
an EU diplomat said on condition of anonymity.
"They want not necessarily to own all the banks but to push
banks to contribute more to stimulate growth."