Bayerische Landesbank, Germany’s second-biggest state-owned lender, is selling its Hungarian unit MKB Bank Zrt to the Hungarian government to fulfill a condition of its 2008 bailout.
BayernLB will receive 55 million euros ($74 million) for a lender that has cost it about 2 billion euros since 1994, BayernLB Chief Executive Officer Johannes-Joerg Riegler said at a press conference in Munich today. As part of the deal, BayernLB will waive 270 million euros in loans owed by MKB.
“It’s a clean cut,” Bavarian Finance Minister Markus Soeder said at the conference. “It’s one more step to resolve BayernLB’s legacy issues.”
The European Union instructed BayernLB, led by Riegler since April, to sell Budapest-based MKB by the end of next year to avoid antitrust worries after the government bailed out the German lender to prevent its collapse during the financial crisis. The sale is scheduled to close in September.
BayernLB acquired a first stake in MKB in 1994, intending to use it as a conduit for expansion into eastern Europe. BayernLB also had to return Hypo Alpe-Adria-Bank International AG, bought in 2007 to expand in the Balkan banking markets, to the Austrian government in 2009.
Hungary’s purchase of MKB squares with Prime Minister Viktor Orban’s agenda of having a banking industry that’s at least 50 percent locally owned. OTP Bank Nyrt., Hungary’s largest lender, competes mostly with foreign banks including Erste Group Bank AG, Raiffeisen Bank International AG and UniCredit SpA.
MKB said losses narrowed to 9 million euros in the first quarter from 61 million euros a year ago. Earnings are being depleted by tougher capital requirements and bank levies in Hungary, where Parliament earlier this month passed a law requiring banks to refund some consumer loan costs.
Hungary hopes to eventually sell MKB on the market, Hungarian Economy Minister Mihaly Varga said today. “Our aim is to create a stable, strong banking system, in which local ownership may increase gradually and the purchase of MKB Bank is a first step,” Varga said in a video on the ministry’s website.
Austria’s Erste, the second-largest lender by assets in Hungary, slumped as much as 16 percent in Vienna on July 4 after the company said it will lose as much as 1.6 billion euros this year because of its Hungarian and Romanian units.
BayernLB said in its annual report that selling MKB during 2014 would result in a full-year loss on group level.
“The financial burden of the MKB sale is within expectations,” Riegler said today, adding that it will “slightly weigh on BayernLB’s very good capital ratios” and reduce the core Tier 1 capital ratio by 0.3 percentage points.