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Document Type

Case Study

Case Series

Resolution and Restructuring

JEL Codes

G01, G29

Abstract

In September 2014, the Hungarian state acquired Magyar Külkereskedelmi Bank (MKB), the country’s fifth-largest foreign-owned commercial bank, from Bayerische Landesbank (BayernLB) of Germany, at a depressed price. Before the sale, BayernLB recapitalized MKB by waiving its outstanding claims on the bank. The European Union had required BayernLB to sell MKB by the end of 2016 as a condition for its approval of the official support BayernLB received during the Global Financial Crisis of 2007–09. But the Hungarian central bank, Magyar Nemzeti Bank (MNB), remained concerned about the risk of further losses in MKB’s commercial and residential real estate loan portfolio. Hungarian officials declared that they had no intention of injecting capital into the bank. On December 16, 2014, MNB’s supervisory department notified the MNB’s resolution department that MKB was insolvent or likely to be insolvent within a year without state support and that its resolution was therefore in the public interest; consequently, the MNB’s resolution department put MKB into resolution. In 2015, a state-run asset management vehicle purchased nonperforming assets from MKB at a subsidized price, effectively recapitalizing the bank. In December 2015, the European Commission approved that transaction, which it considered a form of State Aid for MKB. MKB was the first bank in Hungary to be resolved under the Hungarian law implementing the European Union’s Bank Recovery and Resolution Directive (BRRD). On June 29, 2016, MNB concluded the resolution process by selling MKB to a consortium of three private buyers for HUF 37 billion, roughly one third of its reported book value at the time. Although the asset management vehicle continues to exist, as of the writing of this case, no bank resolutions have occurred in Hungary since 2016.

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