Saturday, July 5, 2014
By Paul Martin

By John Ward
July 5, 2014

IMF uses Erste results to remind the taxpayers of their responsibilities

It seems highly unlikely that Erste (the biggest banking group in central and eastern Europe) chose late Thursday – just prior to a national holiday in the US – by accident as the time aperture in which to tell everyone it was facing a whopping bad debt provision in Hungary and Romania. The loss is understood to be in the region of €3 billion. Even by contemporary banking standards, that is a rather large amount of money.

This is a multi-layered case, being unique…and yet in some ways absolutely classic in terms of the reaction to it.

For starters, Viktor Orban’s government in Budapest has had the audacity to actually take on a large Austrian banking institution and give it a hard time about unfair business terms: its new law will force Erste to repay rip-off fees involved in Hungarian loans.

And to follow, the Romanian problem in turn involves the government there (in the shape of its local central bank) doing its job and telling the banks to clean out their balance-sheet okey-pokey prior to the much-vaunted forthcoming stress test. Don’t hold your breath waiting for the ECB’s Draghula to pull similar stunts.

But back on the well-worn, same-old same-old trail, my favourite analyst observation was that of Stephen Gould at Natixis, who called it “a clearly bad surprise” that Erste was going to lose so much money – purely because it was being asked to play by the rules. I’m cool with the idea of a bad surprise, but if the nature of the surprise is clear and he’s an analyst, then why was it a surprise?

The Rest…HERE

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