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Exrtaordinary Announcement 2020.10.30.
Budapest, October 30, 2020
Hungarian Bankholding Ltd. will launch as planned
Hungarian Bankholding Ltd. will soon commence its effective operation. Today, the key owners of Takarék Group, MKB Bank Plc., and Budapest Bank Group signed an investment and shareholders` agreement as a confirmation of their former letter of intent and decided to transfer their shares into the joint holding company. By taking this step, after the authorization procedure is completed, the second largest banking group in Hungary will be established, which consolidated value exceeds the amount of HUF 740 billion. In the new banking group, the Hungarian State will acquire 30.35 percent of the shares through the Corvinus International Investment Ltd., the owners of MKB will acquire 31.96 percent of the shares and the owners of MTB will acquire 37.69 percent of the shares when the in-kind contributions have been transferred.
By the commencement of the joint operation of the three banking group to be included in the financial holding company which are complement each other well in several areas (as customer base, product and service portfolio, operational structure and network, etc.) a significant, domestically owned participant of the Hungarian banking sector will be established, one which will be the strongest and most capable of development. This provides stability and a predictable liquidity for the Hungarian economy, promoting GDP-growth. According to the analysis of the international strategic analyst firm involved in the transaction, the transaction may generate a synergy of more than ten billion forints per year, which in turn may significantly strengthen the competitiveness, outlook on growth, profit-generating capacity, and stability of the banking group, and may also increase the market value of each individual bank, while further improving the quality of their customer service. The new banking group could also provide a stable foundation for future foreign expansions, which in turn could also improve the country’s GNI indicator (gross national income). Due to its sheer significance, the Hungarian Bankholding Ltd. may well enter the large and stable banking groups of Europe.
In 2021 Hungarian Bankholding Ltd. will develop its detailed merger roadmap, its milestones and the detailed business strategy. The relevant work is carried out by the specialists of the three banks with the participation of international consulting firms, who will be selected in an internal tender. While the new staff of the Hungarian Bankholding Ltd. deals with planning out the future and taking the first joint steps, the professionals working in the three banking groups continuously ensure that the business is still successfully pursued, customers are being taken good care of, and new developments, products, and services are introduced.
In the past months the professionals of the banks carried out the necessary legal, economic, financial and organizational due diligence and assessed the potential synergies resulting from the operation of the three banks as banking group with the involvement of a number of international advisor companies. In connection with the planning of the Transaction the investment banking function was performed by Rothschild & Co and the legal advisor was DLA Piper. Also, one of the world’s leading consulting firms supported the development of the strategic vision of the emerging new banking group and the synergy concept.
The owners of the three banks signed an agreement on October 30 pursuant to which they shall transfer their shares in the banks to Hungarian Bankholding Ltd. Once the in-kind contributions have been transferred successfully, the financial holding company shall exercise the prudential control and group management functions over the banking group and it also controls and manages the merger.
For the time being, the banks will retain their legal status; they will still operate as separate entities with independent brands until their integration. However, they will start making use of the synergies emanating from the joint operations immediately after the in-kind contribution.
In the new banking group, the Hungarian State through Corvinus International Investment Ltd. will acquire 30.35 percent of shares, the owners of MKB will acquire 31.96 percent of shares and the owners of MTB will acquire 37.69 percent of shares at the time of the transfer of in-kind contribution. The value of the in-kind contribution of the respective banks, which determines the proportional ownership ratio of the three banks in the financial holding, is based on a detailed assessment made by Ernst & Young as an independent international consulting firm, drafted in accordance with the relevant provisions of the applicable laws and the international standards.
In accordance with the relevant provisions of the applicable laws after the performance of the in-kind contribution a public bid for the acquisition of interest will be made in the capital of MKB Bank Plc. and Takarék Mortgage Bank Plc.
In the next few days, Hungarian Bankholding Ltd. and its owners will request the approval of the National Bank of Hungary.
The senior management of Hungarian Bankholding will also start its effective operation. Dr. Zsolt Barna will handle the duties of the Chairman of the Board of Directors of Hungarian Bankholding Ltd. and the Chief Executive Officer will be Mr. József Vida; these professionals will jointly manage strategic planning duties. Further members of the Board of Directors are dr. Ádám Balog, dr. Koppány Lélfai, and dr. Attila Tajthy.
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Hungarian Bankholding Ltd.
The financial holding company was established by Corvinus Ltd., Budapest Bank Ltd., MKB Bank Plc., and the controller of Takarék Group, MTB Bank Ltd. in May 2020 in order to examine and prepare the opportunity of the establishment of a domestically owned banking group with significant market power. The new banking group could become the second-largest organization in the Hungarian market: it will serve 1.9 million customers and will operate 920 branches nationwide; nearly half of the domestic branch network. Its aggregated balance sheet total will be close to HUF 6,800, it will have a HUF 3,800 credit volume and a 4,800 billion deposit volume. It will serve 200 thousand microenterprises, 30 thousand small and medium size enterprises, and 6 thousand private banking clients. It will be either the market leader or the second largest organization in many fields (agriculture, Hungarian SME-sector, leasing).
The analyses of the recent months confirmed that the establishment of the banking group by three financial institution complementing each other perfectly facilitates the exploitation of synergies, which could enhance the competitiveness, growth prospects, profit making capacity, stability, and the market value of the companies and the potential of foreign expansion significantly. By combining their strengths and expertise, the financial institutions establishing the new banking group can further modernize their products and services and enhance the quality of customer service. Thus, these institutions are on track to set up a Hungarian-owned banking group which is equally strong in rural areas, in cities, and in the capital, in both the customer and retail segments, as well as in all service and production sectors, including the agriculture and the food industry.
In addition to the complementary client, product, and service portfolios many cost and investment synergy opportunities may arise. By the rationalization of the branch network, significant savings may be achieved. The same applies to the synergies of the support and back office areas. One of the key areas of today’s banking operation is IT. In the field of IT, operation costs and investments as well as the rationalization of the systems and operation expenses represent key potential. In the field of investments and expert costs, further savings can be achieved. Through the efficiency of their respective sizes and their increased bargaining power, the banks may be able to benefit from cheaper sources. According to the relevant analyses, if the key members of the three banking groups merge partially or fully, operative costs could be significantly reduced in the medium term through the application of profit, cost, and investment synergies by the rationalization of parallel operations. This can improve the competitiveness, growth outlook, profitability, and stability of the banking group while further developing the quality of its customer service.
The fusion of the domestically owned Takarék Group, MKB Bank, and Budapest Bank might have significant advantages for the Hungarian economy also. Hungarian ownership may strengthen further in the banking system. The new, economically dominant, universal banking group could operate efficiently despite more stressful market conditions, thus providing stability and predictable liquidity for the Hungarian economy. In addition, the cooperation of the three banking groups may generate additional GDP growth.
Budapest Bank Ltd. was established as one of the first domestic commercial banks in 1987; it is now one of the ten domestic large banks. This bank provides the full range of financial services to both retail customers and enterprises. Its nationwide network includes almost 100 branches. The main subsidiaries of Budapest Bank Ltd. are Budapest Fund Management Ltd. and Budapest Leasing Ltd., Budapest Asset Financing Ltd. Since 29 June 2015, the owner of Budapest Bank Ltd. is the Hungarian State through Corvinus International Investment Ltd.
The Takarék Group is one of the biggest banking groups of Hungary and is a key member of the Hungarian financial system. The members of the Group are MTB Bank of Hungarian Savings Cooperatives Ltd. as its integration business management organization, Takarékbank Ltd. as its universal commercial bank, and Takarék Mortgage Bank Plc., as its specialized credit institution. Its members also include other companies and subsidiaries specialised in factoring, leasing, fund management, real estate management, IT, as well as other auxiliary financial services. The prudent and proper operation of the Takarék Group is supervised by the Central Body of Integrated Credit Institutions having special licenses in this regard. Takarékbank Ltd. is the universal commercial bank of the Takarék Group, it is also the legal successor of the savings cooperatives. It has nation-wide coverage and is one of the biggest domestic financial institution, operating the biggest branch network in the country; it serves 1.1 million clients.
The 70 years old MKB Bank Plc. is the Hungarian financial system’s classic bank. As a result of a successful reorganization between 2015 and 2019, the operation and system of this financial institution follows the criteria and expectations set by the EU. As a significant universal bank of Hungary, MKB provides long-lasting value to its customers through its predictable partnerships. The bank is set on a dynamic development path; it has a well-developed digital foundation and strategy. It also has a traditionally strong corporate and private banking clientele, as well as strong consulting and analytical skills. The core value of the financial institution is its professional customer service enhanced by well-prepared, supportive, honest, and professional work.