OTP Plunges as Tax Prompts Cuts From UBS to VTB: Budapest Mover

OTP Bank Nyrt., Hungary’s largest lender, had the biggest two-day drop in nine months as UBS AG downgraded its recommendation and Raiffeisen Bank International AG cut its price target, citing a planned increase in taxes on banks.

The shares sank 4.6 percent to 4,035 forint by the close in Budapest. OTP has slumped 8.1 percent in the past two days, the biggest such drop since Jan. 5. The benchmark BUX stock index, in which OTP has a 29 percent weighting, declined 1.7 percent.

Hungary won’t meet its pledge to halve the special tax on banks next year and will double a separate levy on financial transactions to keep the budget deficit within 3 percent of gross domestic product, Economy Minister Gyorgy Matolcsy told reporters yesterday. Raiffeisen cut OTP’s price estimate to 3,900 forint from 4,200. UBS AG reduced the stock to neutral from buy and VTB Capital trimmed the lender to hold from buy.

“Given the recent news flow we expect further negative reaction in the share price,” Stefan Maxian, a Vienna-based analyst at Raiffeisen’s Centrobank unit, wrote in a report.

Budapest-based broker Concorde Ertekpapir Zrt. also cut its recommendation to equalweight from overweight, citing the bank taxes and OTP’s more than 30 percent rally since Concorde upgraded the stock in November.

The decision to backtrack on the pledge to cut taxes won’t hurt the economy as lenders already stopped lending in the country, Prime Minister Viktor Orban said in an interview yesterday in Bucharest.

Capital Withdrawal

The tax burden boost may prompt the foreign parents of Hungarian banks to increase their capital withdrawal from the country, raising the risk of a prolonged recession, Levente Kovacs, secretary general of the Bank Association, said today. Mihaly Patai, the association’s head, will resign if Parliament approves the approved measures, he said.

Matolcsy promised that the bank levy will only be extended by one year and will be halved in 2014, Bavarian Finance Minister Markus Soeder told journalists in Vienna today.

“It’s important Hungary does a bit more and rebuilds confidence because they had already promised the same a year ago,” Soeder said.

Hungary is a “real problem case” for Raiffeisen, Herbert Stepic, the Vienna-based lender’s chief executive officer, said at a conference in the Austrian capital today. “Hungary is our most difficult market.”