MKB Bank CEO Sees Sale of Up to 30% Stake on Budapest Bourse

(Bloomberg) -- MKB Bank Zrt., Hungary’s fifth-largest lender, plans to sell as much as a 30 percent stake on the Budapest bourse to meet terms of a European Union-sanctioned bailout, Chief Executive Officer Adam Balog said.

The lender may list about 20 percent to 30 percent of shares on the stock exchange next year, Balog said in an interview Wednesday in his Budapest office. The exact size and timing of the sale will be determined by the bank’s owners, he said.

“We’re planning a significant listing and I’d like to do it earlier than later, for example at the start of 2019,” said Balog. “For sure we’re going to sell a minority stake.”

MKB posted its second consecutive year of profit in 2017 after six years of losses ran the former Bayerische Landesbank unit into the ground. Freewheeling lending, especially on commercial real-estate in the case of MKB, turned toxic when the global financial crisis hammered Hungary and forced the country to obtain an international bailout.

Debt Cleanup

Hungary stepped in to buy the lender from the German bank in 2014. The central bank, where Balog was a deputy governor at the time, proceeded to clean up more than $1 billion of bad loans before a controversial privatization process eventually made an ally of Prime Minister Viktor Orban MKB’s biggest shareholder and Balog its day-to-day manager.

The state rescue came with strings attached from the EU, many of which are still in effect. They included setting targets for cutting costs, improving risk management, divesting certain businesses and abiding by bans on actions including paying dividends and lending in foreign currencies. For a CEO, the conditions, some of which run until 2020, can feel like being “bodychecked,” but after the turbulent start of the decade, they also helped put the lender on a healthier footing, Balog said.

“We believe in humble, modest growth,” Balog said. “We don’t want to do something that later doesn’t prove sustainable.”

MKB -- the fifth-biggest by total assets in Hungary behind OTP Bank Nyrt. and the units of Unicredit SpA , KBC Group NV and Erste Group Bank AG -- may eventually consider domestic acquisition targets. MKB is barred from buying lenders until the end of 2018. It would consider the purchase of Budapest Bank, which the government bought from GE Capital in 2015, if it was to go on sale, Balog said. MKB is also interested in partnerships with private-equity funds, pension funds, insurers and fintech companies, he said.

Influential Shareholder

MKB’s ownership structure, Balog said, won’t lead to a return to risky lending.

Lorinc Meszaros, one of Orban’s closest allies, the former mayor of the prime minister’s hometown and one the wealthiest Hungarians since 2014, is indirectly the bank’s biggest shareholder. His conglomerates, including Konzum Nyrt. and Opus Global Nyrt., are constantly in need of financing as acquisitions spanning media, energy, construction and tourism have made them among the world’s best-performing stocks last year. Orban has rejected opposition charges that Meszaros may be a front for his wealth.

Other MKB owners include a cousin of National Bank of Hungary Governor Gyorgy Matolcsy and Balog, his former deputy.

“Let’s forget who bought the bank and who’s the owner,” Balog said, adding that the owners’ expectations of management are “fundamentally fair.” “The bank is operating, lending is prudent and we’re protecting depositors’ money.”

To contact the reporters on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net;Gabriella Lovas in Budapest at glovas2@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net, James M. Gomez, Dale Crofts

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