Days before the leaders of the Group of 20 gathered to make decisions — or avoid them — that would directly affect Hungary, Sandor Csanyi, chairman of OTP, the country’s largest bank, could not conceal the stress, despite putting on a brave face.
Mr. Csanyi’s puffy red eyes showed the toll of the last seven months: the near default of Hungary on its foreign debt, the 90 percent plunge in his bank’s stock price as short sellers took aim at OTP, and, most recently, the surprise resignation of Hungary’s prime minister, which has raised questions about the government’s ability to carry out crucial economic reforms.
“Hungary is not Iceland,” he said, drinking a glass of red wine as the Danube rolled by a riverside restaurant here. “And OTP is not Citibank or RBS.” But OTP may be more similar to its western peers than Mr. Csanyi cares to admit. Short-sellers have laid siege to the bank, calculating that it has more sour loans on its books than it is willing to admit and that its cash cushion may prove insufficient.
Like Hungary itself, which thought it could borrow its way to prosperity in a post-cold war economy that seemed boundless, OTP relied on cheaply obtained foreign capital to finance its growth — a practice followed by many of its peers in Eastern Europe. But when the nation’s currency, the forint, collapsed last year, the foreign-denominated loans soared in value, making it extremely hard for domestic borrowers to repay their loans as the economy shrank.
This week, the bank received a $1.8 billion government loan backed by the International Monetary Fund in return for a commitment to increase domestic lending. As for Hungary, the $25 billion agreement it signed with the monetary fund last year has put it in an awful policy vise. Mandated to squeeze its budget deficit below 3 percent of gross domestic product, the government is in no position to stimulate an economy estimated to sink by as much as 6 percent this year.
“Hungary has an uphill struggle, but we know that,” Gordon Bajnai, the economy minister, said in an interview in late March. “We need a reform-minded government.” On Monday, Prime Minister Ferenc Gyurcsany, the former Communist who has led the country since 2004, appointed Mr. Bajnai, a 41-year-old former businessman, to lead that effort as his successor. But furious opposition from Hungary’s right wing — which has called for elections — may limit the scope of his ambitions.
Lajos Bokros, a former finance minister, says that the alternative to not meeting the monetary fund’s conditions is bankruptcy. He worries that the forint will fall even further amid the political uncertainty — a concern underscored by downgrades of Hungary’s credit rating by Standard & Poor’s and Moody’s this week. “Hungary is falling behind Europe,” he said. “This does not create much room for optimism.” It is popular here to explain the acrimonious state of Hungarian politics as a consequence of an immature democracy still torn by a long dispute between former Communists and their bitter enemies on the right.
But Peter Muller, a well-known playwright, said the problem was societal in post-Communist Hungary. “We had daydreams of capitalism during communism,” he said. “But then becoming rich became a religion.” Mr. Csanyi, 58, is certainly rich but he wears his wealth in a rough-hewn manner and is happiest when hunting wild boar in the countryside. Born poor in a small village southeast of Budapest, he spent years working in Hungary’s finance ministry before taking over OTP in 1992 when the bank was privatized.
Since then, he has overseen an ambitious expansion in central Europe, buying banks in Serbia, Bulgaria, Russia and Ukraine. When foreigners withdrew their capital in a rush last year, OTP’s stock collapsed, as short-sellers saw it as a proxy for central Europe’s financial maelstrom. Among the most persistent was George Soros, the Hungarian-born financier. His fund was fined $2 million by Hungarian regulators last week for having manipulated OTP’s stock price.
Mr. Csanyi’s response has been unconventional to say the least: OTP has spent $350 million buying back its stock in a bid to raise confidence in the bank. “I think now they are afraid,” he said, referring to short-sellers. Mr. Soros — who once tried to buy OTP — has apologized, but it is by no means clear that others who have shorted OTP in the past will turn tail now that the bank has become a buyer. Instead, with the bank’s loan book under pressure, Mr. Csanyi’s decision to deploy precious capital in such a way has raised as many questions as it has answered.
Two days after Mr. Gyurcsany’s resignation, Mr. Csanyi stood behind his desk in his office, his eyes fixed on a computer screen. OTP’s stock had had a strong opening for a change, despite the political news. With a grunt of satisfaction, he said, “1,800 forints — that is O.K.” But it was still a far cry from its high of 10,900. “Our loan portfolio is good,” he added. “There is no reason the stock price is so low.”
All the same, many investors have doubts. Morgan Stanley, in a recent research note, forecast that OTP’s nonperforming loans would reach 15 percent in the next two years and put a big dent in profits. OTP executives accept that nonperforming loans are on the rise, but they insist that the bank’s 15 percent capital cushion and an International Monetary Fund reserve fund provide a sufficient safety net.
OTP is also negotiating a subordinated loan from the European Bank for Reconstruction and Development, a multilateral institution with a mandate to aid eastern Europe. That process has been delayed by concerns that the deepening recession in Hungary would increase OTP’s burden of nonperforming loans.
But the cash is likely to come through. As the country’s largest bank and one of the most active in central Europe, OTP — like Citigroup and Royal Bank of Scotland, and indeed Hungary itself — is just too big to fail. Unfortunately, there may be no such reprieve for its customers.
In a small walk-up apartment on the outskirts of Budapest, George Ivanyi, a founder of the Association of Bank Loan Victims, does his best to cope with an unceasing flow of Hungarians who have come to seek advice because they can no longer pay their mortgages after the forint’s collapse. Volunteer law students sip Red Bull while they counsel couples, and amid the buzz of activity a perpetually ringing phone goes unanswered. "I feel the desperation of the people,” Mr. Ivanyi said. “The banks are responsible — but so is the government. They should not have approved these loans.”
One woman, he recounts, was so overwhelmed when the monthly mortgage bill on her Japanese yen-denominated loan from OTP suddenly soared 50 percent that she ingested a dose of rat poison and narrowly escaped death. OTP executives say they are doing all they can to help customers repay their debts, and the association says OTP has been cooperative in working to devise solutions.
With volunteers too busy to answer the phone, many of those looking for help come in person — like Istvan Rakitovszky, 46, a construction worker who was laid off last fall and can no longer pay his Swiss franc-denominated loan from Raiffeisen Bank, a large Austrian-based bank.
He and his wife bought a small apartment two years ago, but they can no longer keep up the payments. Last week they received a letter from a collection agency saying their house would be repossessed. “I am afraid,” said Mr. Rakitovszky, his face gaunt, his clothes shabby, his eyes far away. “We have two kids. Where will we live?”
Fuente: IHT/NYT
Mr. Csanyi’s puffy red eyes showed the toll of the last seven months: the near default of Hungary on its foreign debt, the 90 percent plunge in his bank’s stock price as short sellers took aim at OTP, and, most recently, the surprise resignation of Hungary’s prime minister, which has raised questions about the government’s ability to carry out crucial economic reforms.
“Hungary is not Iceland,” he said, drinking a glass of red wine as the Danube rolled by a riverside restaurant here. “And OTP is not Citibank or RBS.” But OTP may be more similar to its western peers than Mr. Csanyi cares to admit. Short-sellers have laid siege to the bank, calculating that it has more sour loans on its books than it is willing to admit and that its cash cushion may prove insufficient.
Like Hungary itself, which thought it could borrow its way to prosperity in a post-cold war economy that seemed boundless, OTP relied on cheaply obtained foreign capital to finance its growth — a practice followed by many of its peers in Eastern Europe. But when the nation’s currency, the forint, collapsed last year, the foreign-denominated loans soared in value, making it extremely hard for domestic borrowers to repay their loans as the economy shrank.
This week, the bank received a $1.8 billion government loan backed by the International Monetary Fund in return for a commitment to increase domestic lending. As for Hungary, the $25 billion agreement it signed with the monetary fund last year has put it in an awful policy vise. Mandated to squeeze its budget deficit below 3 percent of gross domestic product, the government is in no position to stimulate an economy estimated to sink by as much as 6 percent this year.
“Hungary has an uphill struggle, but we know that,” Gordon Bajnai, the economy minister, said in an interview in late March. “We need a reform-minded government.” On Monday, Prime Minister Ferenc Gyurcsany, the former Communist who has led the country since 2004, appointed Mr. Bajnai, a 41-year-old former businessman, to lead that effort as his successor. But furious opposition from Hungary’s right wing — which has called for elections — may limit the scope of his ambitions.
Lajos Bokros, a former finance minister, says that the alternative to not meeting the monetary fund’s conditions is bankruptcy. He worries that the forint will fall even further amid the political uncertainty — a concern underscored by downgrades of Hungary’s credit rating by Standard & Poor’s and Moody’s this week. “Hungary is falling behind Europe,” he said. “This does not create much room for optimism.” It is popular here to explain the acrimonious state of Hungarian politics as a consequence of an immature democracy still torn by a long dispute between former Communists and their bitter enemies on the right.
But Peter Muller, a well-known playwright, said the problem was societal in post-Communist Hungary. “We had daydreams of capitalism during communism,” he said. “But then becoming rich became a religion.” Mr. Csanyi, 58, is certainly rich but he wears his wealth in a rough-hewn manner and is happiest when hunting wild boar in the countryside. Born poor in a small village southeast of Budapest, he spent years working in Hungary’s finance ministry before taking over OTP in 1992 when the bank was privatized.
Since then, he has overseen an ambitious expansion in central Europe, buying banks in Serbia, Bulgaria, Russia and Ukraine. When foreigners withdrew their capital in a rush last year, OTP’s stock collapsed, as short-sellers saw it as a proxy for central Europe’s financial maelstrom. Among the most persistent was George Soros, the Hungarian-born financier. His fund was fined $2 million by Hungarian regulators last week for having manipulated OTP’s stock price.
Mr. Csanyi’s response has been unconventional to say the least: OTP has spent $350 million buying back its stock in a bid to raise confidence in the bank. “I think now they are afraid,” he said, referring to short-sellers. Mr. Soros — who once tried to buy OTP — has apologized, but it is by no means clear that others who have shorted OTP in the past will turn tail now that the bank has become a buyer. Instead, with the bank’s loan book under pressure, Mr. Csanyi’s decision to deploy precious capital in such a way has raised as many questions as it has answered.
Two days after Mr. Gyurcsany’s resignation, Mr. Csanyi stood behind his desk in his office, his eyes fixed on a computer screen. OTP’s stock had had a strong opening for a change, despite the political news. With a grunt of satisfaction, he said, “1,800 forints — that is O.K.” But it was still a far cry from its high of 10,900. “Our loan portfolio is good,” he added. “There is no reason the stock price is so low.”
All the same, many investors have doubts. Morgan Stanley, in a recent research note, forecast that OTP’s nonperforming loans would reach 15 percent in the next two years and put a big dent in profits. OTP executives accept that nonperforming loans are on the rise, but they insist that the bank’s 15 percent capital cushion and an International Monetary Fund reserve fund provide a sufficient safety net.
OTP is also negotiating a subordinated loan from the European Bank for Reconstruction and Development, a multilateral institution with a mandate to aid eastern Europe. That process has been delayed by concerns that the deepening recession in Hungary would increase OTP’s burden of nonperforming loans.
But the cash is likely to come through. As the country’s largest bank and one of the most active in central Europe, OTP — like Citigroup and Royal Bank of Scotland, and indeed Hungary itself — is just too big to fail. Unfortunately, there may be no such reprieve for its customers.
In a small walk-up apartment on the outskirts of Budapest, George Ivanyi, a founder of the Association of Bank Loan Victims, does his best to cope with an unceasing flow of Hungarians who have come to seek advice because they can no longer pay their mortgages after the forint’s collapse. Volunteer law students sip Red Bull while they counsel couples, and amid the buzz of activity a perpetually ringing phone goes unanswered. "I feel the desperation of the people,” Mr. Ivanyi said. “The banks are responsible — but so is the government. They should not have approved these loans.”
One woman, he recounts, was so overwhelmed when the monthly mortgage bill on her Japanese yen-denominated loan from OTP suddenly soared 50 percent that she ingested a dose of rat poison and narrowly escaped death. OTP executives say they are doing all they can to help customers repay their debts, and the association says OTP has been cooperative in working to devise solutions.
With volunteers too busy to answer the phone, many of those looking for help come in person — like Istvan Rakitovszky, 46, a construction worker who was laid off last fall and can no longer pay his Swiss franc-denominated loan from Raiffeisen Bank, a large Austrian-based bank.
He and his wife bought a small apartment two years ago, but they can no longer keep up the payments. Last week they received a letter from a collection agency saying their house would be repossessed. “I am afraid,” said Mr. Rakitovszky, his face gaunt, his clothes shabby, his eyes far away. “We have two kids. Where will we live?”
Fuente: IHT/NYT
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