World Economy

Hungarians Risk Losing Life Savings

Hungarians Risk Losing Life SavingsHungarians Risk Losing Life Savings

Hungary’s National Bank is still trying to estimate the fallout from its seizure of brokerage firm Quaestor. The company was shut down this week, the third security and investment firm to have its activities suspended within weeks.

Investigators believe it may have invested scores of billions of euros more in bonds than it was allowed to under its bond insurance program, Euronews reported.

Earlier this month, the central bank revoked the license of Buda-Cash and four small banks linked to it, saying the brokerage could not account for about 340 million euros of client cash.

Thousands of people may be affected. Last week, the National Bank of Hungary also revoked the license of a smaller brokerage: Hungaria Securities.

Every brokerage in question appears to have falsified data. Buda-Cash and Quaestor are accused of doctoring their IT systems, whereas Hungaria Securities is said to have used the old-fashioned “exercise book” method for its fraud.

  Call for Investigation

Istvan Binder, spokesman for National Bank of Hungary said: After the Buda-Cash case the National Bank of Hungary immediately realized that the whole market, even if it is just a small section, has to be examined very quickly. So we decided to start a range of investigations on the spot at other brokerage companies as well.”

Economic journalist Andras Mihalovits told euronews that the consequences may be disastrous if those few people who have investments lose their trust and take out their money from all the brokerage companies.

“I think the consequences will be extremely serious. Basically the Hungarian investors, and there are not many of them, can lose their trust in the brokerage companies, no matter if it is a small, independent firm of a big company with a huge, international bank in its background.”

  Pretrial Arrests

The prosecutor’s office of Budapest on Wednesday ordered pretrial custody of three people involved in a criminal investigation into alleged fraud that has caused significant damage at Hungarian brokerage Buda-Cash Brokerhaz Zrt.

Up to 75 billion forints ($264 million) is missing at Buda-Cash and a further 30 billion forints at four small banks linked to it, Istvan Binder, a central bank spokesman, told The Wall Street Journal Wednesday.

The brokerage’s woes have raised concerns for the stability of the Hungarian financial system. The local fraud investigations added to the Hungarian forint’s volatility in recent days when emerging-market currencies saw significant declines as investors have become more convinced the US will start raising interest rates by midyear.

The central bank believes the troubles of the four small banks involved in the Buda-Cash investigation don’t pose a systemic risk to the country’s financial sector. Based on their combined assets, they account for a marginal part of the banking sector and their market share is some 0.5%, Binder said.