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.