Tag Archives: Budapest Stock Exchange

What’s happening at the Buda-Cash Group? No one knows

On the evening of February 22, an entire police squad arrived at the headquarters of the Buda-Cash Group, a financial institution established in 1995. Despite its unfortunate name, it is not a payday lender. Among other things, Buda-Cash (BC) owns a network of eleven brokerage firms with 200 employees and about 20,000 customers and engages in financial advising and portfolio management. It also owns four small banks that formerly functioned as credit unions and that managed to remain independent at the time other credit unions were nationalized in 2013-2014.

The following day, February 23, László Windisch, one of the deputies of György Matolcsy, head of Hungary’s central bank (Magyar Nemzeti Bank), described in dramatic terms what he considers to be the greatest financial scandal in Hungary. The National Bank suspects that over the last fifteen years the top management of BC siphoned off as much as 100 billion forints of its customers’ money.

The National Bank is new to the business of supervision. Until about a year and a half ago a separate governmental body, Pénzügyi Szervezetek Állami Felügyelete (PSZÁF), supervised the financial sector. The last time there was a thorough inspection of BC was in May 2010, when some small irregularities were discovered but nothing substantial. By that time, PSZÁF had a Fidesz-appointed chairman, Károly Szász.

From day one people who know something about the world of finance in general and Hungarian finance in particular had their doubts about some of the details of the case. First of all, it soon became evident that the Hungarian National Bank, into which PSZÁF was incorporated, has not yet done any investigation. The police were gathering documents even as Windisch’s press conference was in progress. The second fact that bothered financial experts was the size of the alleged loss, as much as 100 billion forints. The sum total of securities currently held in Hungary is only 250 billion forints. To steal almost half of this amount without anyone realizing it is hard to imagine. Moreover, there were in Windisch’s announcement several indications that the Hungarian National Bank knows very little about the whole case. He talked about a “suspicion of possible wrong doing.” And when he referred to the size of the loss, he cautiously noted that “it may even be 100 billion.” Clearly, he was groping in the dark.


The following day came a new announcement. All four small banks owned by the Buda-Cash Group had to be closed. The response to this announcement was understandable panic. After all, the four banks have roughly 120,000 customers, among them about 80 municipalities which now can’t even pay their employees. Eventually, the National Bank decided to reopen some of these banks but limited withdrawals to 60,000 forints. Well, the municipalities won’t be able to do much with that amount of money.

Why were these banks closed? One theory is that the government through the Hungarian National Bank wanted to punish BC for managing to save its four credit unions from nationalization. Those holding this view are convinced that the four banks are in fact in good financial shape. They claim that in the last few months the Hungarian National Bank checked one of these banks at least six times and found everything to be in good order. Others are not so sure. They believe that the banks are in trouble and should be closed after their customers are fully compensated, as guaranteed by the bank law. And since the fund (Országos Betétbiztosítási Alap = OBA) that is supposed to make all depositors whole is financially strapped because of an earlier bank failure, the Hungarian National Bank would most likely have to come to the rescue. Therefore, according to those who dismiss the conspiracy theory, it is not in the interest of the National Bank to create a case out of thin air.

It remains unclear what’s going on with the Buda-Cash Group and its affiliates. Is the scandal real or imagined? The suspicion that it may be imagined was heightened this afternoon when Antal Rogán, head of the Fidesz parliamentary delegation, called the BC case a “socialist brokerage scandal.” Rogán claimed to know the details of the case. According to him, the owners of BC stole the money deposited in its banks by people of modest means. And BC had to be closely linked to the socialist-liberal government because, for example, Gordon Bajnai asked the chairman of BC’s board to become government commissioner in charge of the restructuring of MÁV (Hungarian State Railways). Bajnai also appointed Miklós Andrási, former manager of BC, to be the CEO of MÁV. Rogán added that Andrási was one of the founders of Fidesz, but once they discovered that he was “Bajnai’s man” the party broke all ties to him.

Fidesz is trying to make political capital out of a case we know practically nothing about. Understandably so. The top leadership of Fidesz was badly shaken by the loss the party suffered in Veszprém, a defeat that came less than two months before another by-election will be held in the same county. Moreover, there is the rapid loss in popularity of Viktor Orbán, his government, and his party. Orbán’s attack on refugees and migrants was allegedly devised to counter this trend. Some people are convinced that the idea came straight from the most important spin doctor of Fidesz, the American Arthur J. Finkelstein. Admittedly, it’s a clever move since Hungarians are not at all keen on immigrants. If the government can also show that its opponents are linked to an egregious financial scandal, so much the better.

Late this evening the Budapest Stock Exchange restored Buda-Cash’s right to continue its activities, admittedly with major restrictions. They can trade only in derivatives (currencies), not stocks, and can only close out positions they hold, not initiate new positions. This might be intended to be an orderly liquidation of the firm or simply a way to buy time for the investigation to play out. We’ll have to wait to see what the National Bank comes up with. I don’t expect any quick answers. As we know, the Orbán government is skilled in dragging things out.

Another austerity package: The eleventh since the Orbán government took office

The online newspaper Stop warned on May 29, after the news broke that the European Commission would recommend to the Economic and Financial Affairs Council (Ecofin) of the EU that the excessive deficit procedure against Hungary be lifted, that “Brussels is still watching.” Well, it seems that they didn’t watch closely enough. Here we are three weeks after the news so loudly trumpeted by the Hungarian government as a huge victory for its sound economic policies. And it appears that the great planners of the economy in the Ministry of National Economics realized, perhaps with some help from Brussels, that after all the numbers don’t add up.

In today’s Hungarian edition of Portfolio one of the headlines reads: “Surprising austerity package was announced by Varga: Tax hikes are coming.” I don’t know why the financial reporters of Portfolio are surprised. I think it was predictable, given the economic climate in the country, that the deficit was unlikely to be kept under 3% this year. And if it isn’t, Hungary could easily end up being under excessive deficit procedure again in no time.

There was another headline that caught my eye. According to HVG, financial analysts cannot agree on whether this latest austerity package was really necessary. The “expert” from TakarékBank claims that this step was unnecessary and only shakes investor confidence in a more predictable economic policy that everybody was hoping for after the departure of György Matolcsy. His colleague at BudaCash, on the other hand, detected a one hundred billion forint shortfall because only half of the anticipated revenues from the new taxes actually reached the treasury.

I was also fairly amused when I discovered that a Hungarian-language blog awarded Mihály Varga the Pinocchio Prize. At first I thought that awarding this “prize” to the minister of economics was a response to his announcement of the new tax hikes, but I soon discovered that the article was posted at 8 o’clock in the morning whereas Varga’s press conference announcing the new taxes took place only two hours later. The blogger was talking about the exaggerated descriptions of a booming economy very much in the style of György Matolcsy. As several newspapers said, the Hungarian population is still supposed to believe the government “fairy tale.”

Did the government have to adjust the budget again? Was it necessary? You can bet your bottom dollar that it was necessary. Let’s not forget that Ecofin will reach its final decision on the excessive deficit procedure two days from now, on June 19. I wouldn’t be at all surprised if we found out that the Hungarian government received word from Brussels that the figures they submitted didn’t quite add up. Now the only question is whether this last-minute scramble for additional funds will satisfy Brussels’ demands for an economic policy that ensures sustainable economic growth. Or whether they will change their minds, claiming that these periodic adjustments are no remedy for Hungary’s economic ills. In fact, they exacerbate them. One could argue that the very heavy taxation imposed on both consumers and companies may lead the country back into recession.

Here are the main points of the package: (1) a hike of the financial transaction tax (FTT) rate on non-cash transactions to 0.3% from 0.2%; (2) an increase in the FTT rate on cash transactions to 0.6% from 0.3%; (3) an increase in the telecom tax to HUF 3 from HUF 2 per minute or per SMS and a higher cap for corporations from HUF 2,500 to HUF 5,000 per month; (4) an increase in the mining royalty fee to 16% from 12%; (5) a 6% health care contribution to be paid on interest and capital gains; (6) and, what Varga forgot to mention in his press conference, banks will have to pay a 7% tax on the amount of their loans to the municipalities that the national government took over. The rationale? The state is a more reliable borrower than the municipalities. So, the “reliable customer” will not pay back what he owes in full! What can one say?

There are some who have plenty to say. LMP announced that Varga’s economic policy is not one whit more reliable than Matolcsy’s. Its spokesman Gábor Vágó emphasized the need for a total economic turnabout. Együtt PM called attention to the fact that a week ago Varga still claimed that the budget’s cardinal numbers were solid and needed no adjustment. There is still something very wrong with the Ministry of Economics.

The blog that handed the Pinocchio Prize to Varga  published an estimated total of the ten “packages” since the Orbán government took over. They arrived at 3 trillion forints. This last package, the eleventh, is also quite large. Experts estimate it at anywhere between 100 and 200 billion forints.

Estimated amounts of austerity measures (2010-2012)

Estimated amounts of austerity measures (2010-2012)

The forint survived the announcement relatively well. It is still hovering around 291 to a euro. Unfortunately the BUX (the Budapest Stock Market) did not fare as well, with heavy telecom and banking (OTP) losses.

When Varga took over the ministry he indicated that perhaps the government will stop some very expensive and not urgently needed projects such as soccer stadiums and refurbishing the square in front of the parliament. But soon enough it became clear that for Viktor Orbán these mega-projects that symbolize the greatness of his regime are far too important. The government would rather introduce new taxes to pay for his pet projects. Especially if on Wednesday Hungary is released from bondage by Ecofin. In fact, there is speculation that the government never seriously thought of abandoning these “prestige projects.” It was only a ploy to show the EU that the Hungarian government is even willing to sacrifice stadiums on the altar of economic stability.

I predict that this is not the end of the austerity measures. I wouldn’t be at all surprised if within a few months, most likely well before the end of the year, there is another announcement about new taxes. This time to avoid being returned to the group under excessive deficit procedure.

Negative economic signs but generally upbeat mood


As usual, there are conflicting explanations for the Hungarian Stock Exchange’s very poor performance today. The BUX lost 1.78% when other European exchanges moved in the opposite direction.

One explanation came from BudaCash brokerage, which claimed that the drop was due to foreign investors’ eagerness to realize profits before the announcement of the Hungarian government’s austerity program next Monday when Viktor Orbán will make his long-awaited speech in parliament.

Erste Investment Zrt’s spokesman believed that perhaps the IMF’s very sharp criticism of the Orbán government’s economic strategy had something to do with the bad performance of the BUX this week. Moreover, since nobody knows what the austerity package will include, expectations vary from optimism to deep concern.

But the BUX’s performance was not the only piece of bad news. Yesterday the National Economic Ministry announced that the budget deficit in January was 122.8 billion forints, 18% of the planned deficit for the entire year. And that figure doesn’t include the deficits accumulated by local governments. Revenues were 77.4 billion forints less than a year ago while expenditures were 72.2 billion forints higher than in January 2010. Personal income tax receipts alone were 36 billion forints less than a year ago. The reason for this change is obvious: the new tax code.

MSZP immediately reacted to the news in the strongest terms. They called the January figures “a horror story” that shows that not even with “extra levies and the expropriation of private pension funds” can the budget be balanced. According to MSZP “government expenses have increased dangerously.” The Orbán government promised a smaller and cheaper state but expenditures have grown by 150 billion forints in comparison to the situation a year earlier. At the same time, “the unjust flat tax has created a 350 billion hole in the budget.”

The National Economic Ministry tried to sell these very large deficit figures as a great success because, according to the ministry, they “are one of the lowest monthly figures in the last twelve years.” Of course, one can parse the data that way, but such a calculation is questionable because the size of the deficit varies from month to month within the year. One should compare January figures only to past January figures. In fact, the MSZP spokesman pointed out, in the last three years of the Gyurcsány and Bajnai governments there was a surplus in January: more than 30 billion forints each year.

And to add insult to injury, in January the number of unemployed workers grew by 90,000, which is almost one-sixth of the total number of unemployed (680,000). This despite the fact that during the same period the number of available jobs grew by 130%. The surge in unemployment is most likely due to the new regulation that restricts people until now employed full time on public works projects to half-time jobs of four-hour work days. The amount of money they would earn from part-time work is not enough to keep body and soul together. Thus these people are back in the job market.

It was also reported in Magyar Nemzet that the Hungarian government will cut back on subsidies used to lure foreign investment. According to Zsolt Becsey, undersecretary in charge of foreign trade, until now Hungary has been much more generous with subsidies to foreign firms than other countries in the region. That will come to an end. Subsidies will be given only to those firms that use Hungarian suppliers. Even then, the subsidy will not exceed five million forints ($25,386) per new job created.

There is one piece of good news for the prime minister. According to Századvég (a think tank close to Fidesz) almost two-thirds of the people liked Viktor Orbán’s speech. Three-quarters of them think that the speech was “forceful, strong, fit for a statesman.” Mind you, only about 20% of those asked actually saw or heard part or all of the speech. Forty-six percent heard about it only in the news. Six out of ten who actually watched the speech on television or heard it on the radio found the speech excellent because it was “easily understandable and assertive.” Eighty-three percent of the people agreed that the debt is the greatest problem that threatens the future while 98% endorse the notion that people ought to work instead of living on the dole. They also liked the idea of “renewal” (92%), and 64% agreed that “there is a need to have a new constitution that closes the past and opens a new chapter in the country’s history.”

Hungarians buy into Orbán’s rhetoric. They don’t ask how people will transition from welfare to work in a setting of increasing unemployment. They don’t ask what “renewal” means. Realism hasn’t been a strong suit of Hungarians.

And that reminds me of an interview I saw lately, although it was aired last October, with Attila Csernoch who lately has achieved some fame as an author of popular history books. Csernoch was trained as a statistician, later became an economist, and eventually one of the vice-presidents of the Hungarian National Bank in the Kádár regime. He moved to Brazil where he became a businessman. He still lives there but is by now retired. He decided to explain the causes of Trianon and in general tell the Hungarian public the “truth” about their own history.

The interview took place on László Juszt’s “Magánbeszélgetés” (Private Conversation). I wasn’t sure whether Juszt was actually ignorant of Hungarian history or just feigned it, but he looked very surprised about some of the facts related by Csernoch. At the same time, I’m sure that Csernoch shocked some of his listeners when he expressed very negative feelings about Lajos Kossuth and the 1848-49 revolution and war of independence. Or when he pointed out that over the centuries the Hungarians rose against foreign occupation six or seven times and were defeated in every case. He went on to explain the lack of realism that exists in the country and the provincialism that prevents the country’s inhabitants from seeing Hungary and her place in the sun in realistic terms. So, you can imagine Csernoch’s opinion of Fidesz’s victory. I can picture Csernoch back in Brazil reading Századvég’s opinion poll on the enthusiastic reception of Viktor Orbán’s speech on February 7 and shaking his head.

February 9, 2011