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Hungary in danger of bankruptcy?

by DoDo Fri Oct 10th, 2008 at 03:28:24 AM EST

As a direct consequence of the credit crisis, the first country, Iceland Teeters on the Brink. But yesterday, a turmoil on Hungarian financial markets signalled that larger countries are at risk, too, and that from indirect effects.

Yesterday, not only did the Budapest Stock Exchange follow the Dow down, but

  • the shares of the largest bank OTP (which has no exposure at all to bad assets in the US) fell 22% (altogether 40% in four days),
  • the local currency, the Forint, fell from 250 to 265 an Euro within hours
  • and, much more importantly, the secondary market in state treasuries came to a standstill.

Experts and the national bank claim that Hungary's financial situation is still sound and can weather the storm, and that we are seeing collateral damage from the global panic. Still, one hard fact remains: in the credit crunch, countries with higher budget deficits will have a hard time finding financing.

The erosion of the share price of the OTP bank can be safely ascribed to short-selling speculator attacks in the wake of rumours. Rumours sent to brokers by e-mail, with origin in London, claimed that OTP is about to be nationalised.

The only origin for the rumours I can see is wild speculation after OTP's boss sold off his last shares in Hungarian oil major MOL in one go on Monday (to the tune of 0.7 million). But the likely motivation here is to prepare a takeover of OTP as a good asset. There is even a suspected instigator of the attack: [ed: name deleted for potential libel reasons].

In truth, OTP is a conservative savings bank, profitable, has large deposits (the credit/deposit ratio is 114%, but the bank says they don't need interbank loans), and claims it had no investments on the US subprime markets. Media report the bank will 'save itself' from the short-selling attack without state or other outside help, by buying own shares. Still, we see that no one is truly safe in the global bear market.

As indicated, the more serious problem was the one hitting treasuries.

Hungary suffered a runaway budget deficit in recent years, peaking at 9.2% of GDP in 2006 (see Eurostat). It was just reduced to an expected 3.5% of GDP this year.

But, in a crisis, investors will pull back to the safest assets, so even -3.5% with positive trend may not seem as manageable. And yesterday, debt management hit serious problems for the first time.

First, the State Debt Management Centre auctioned treasuries worth €160 million, but could only sell €120 million. Then on the secondary market, sellers just did not find any buyers -- investors totally deserted this market.

The turmoil was mentioned in the OT by Martin.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Oct 10th, 2008 at 03:32:14 AM EST
I note that according to the data of the State Oversight Body of Financial Institutions, there is no liquidity problem for Hungarian banks: there was a net influx of €40 million even yesterday.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Oct 10th, 2008 at 04:33:46 AM EST
[ Parent ]
Update on events this morning:

  • The stock market plunge (from 15,000 to near 13,000) and the Forint depreciation (to 272 an Euro) continued, trading was temporarily suspended in a number of shares (including OTP and worst-hit MOL).

  • The authority started an investigation into one single deal in OTP shares yesterday: this deal concerned 10% of the whole trade, and was way off the then going price. OTP itself sued for spreading rumours. (Also, the minister declared that they offered a credit guarantee to OTP, but the bank refused stating no need.)

  • One smaller bank, the Hungarian branch of Citibank, did offer Lehman Brothers bonds to its customers -- and is simply telling them that they lost their money, they won't reimburse customers.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Oct 10th, 2008 at 04:50:30 AM EST
[ Parent ]
Update on update: rewind on panic. Within an hour, the Forint is back to 260 an Euro, the stock market index BUX rebounded to around 14,000 (OTP rebounded too).

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Oct 10th, 2008 at 04:58:55 AM EST
[ Parent ]
More update: the rebound continued. What's more, OTP seems to have averted the attack on its own, with massive purchases of own stock.

As for the treasuries and state bonds, the state debt authority declared they reduce the selling of these "in reaction to falling demand", only selling dbt renewal until the end of the year.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri Oct 10th, 2008 at 01:14:10 PM EST
[ Parent ]
Danke, DoDo.  I guess this is evidence that "systemic" problems are just that, and more widespread globally than I could have imagined.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Fri Oct 10th, 2008 at 04:04:54 AM EST
Any situation reports on other Central-Eastern Europe countries?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Oct 12th, 2008 at 08:15:25 AM EST
From what I heard, the worst so far in other countries was the decline of the Polish zloty.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun Oct 12th, 2008 at 02:00:23 PM EST
[ Parent ]
OTP Chairman-CEO Mr. Csányi obviously sold his MOL (Hungraian Oil Company) shares to buy more own shares in the bank led by him.

As an interesting fact with reference to the note from the above artice: "[ed: name deleted for potential libel reasons].", I used this website to found my contributions to a Wikipedia article, but I was banned from future edits (http://en.wikipedia.org/w/index.php?title=Greg_Coffey&diff=247012711&oldid=247011325). Quite interesting, isn't it?


by Mazarin07 on Thu Oct 23rd, 2008 at 07:05:32 PM EST

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