FHB, Hungary’s second-largest listed bank, was placed under review for downgrade by Moody’s Investors Service on June 22. The move follows the fall of Zoltan Speder, owner of the lender, from grace.
The oligarch has come under sudden and apparently coordinated attack in recent weeks, having evidently fallen from favour after years of working closely with the Fidesz government. Moody's has now placed FHB’s caa2 BCA and its Caa1 long-term deposit ratings and long-term Counterparty Risk (CR) Assessment of B2(cr) under review for downgrade.
“This rating action reflects the increased risks to the bank's solvency and business prospects following continued sizable losses during Q1 2016, as well as the recent measures taken by the Hungarian authorities, including the bank's involvement in a police investigation and imposing fines on the bank for previous market misconduct by the central bank," the ratings agency said in a statement. "The rating action also reflects Moody's concerns about the effects of negative publicity on the bank's franchise."
Moody’s notes that the bank reported large losses in recent years, which resulted in a material depletion of capital. That has in turn led to a recapitalisation by Takarekbank and other members of the Integration Organization of Cooperative Institutions in Q1 2016. Speder has been accused by rivals and officials of raiding Hungary's network of cooperative banks, which he took over in a controversial deal in 2014, to cushion FHB from its losses.
“Whilst this capital increase helped raise the bank's CET1 ratio to 14.8% as of end-Q1 2016 from 12.5% as of year-end 2015, Moody's believes that FHB's capitalisation will likely remain under pressure,” the statement reads, adding FHB reported a net loss of HUF1.28 billion in Q1 2016.
The ratings review also relates to FHB's announcement on June 17 that it will repurchase €112mn of perpetual capital securities. The repurchase would result in FHB’s capital adequacy ratio declining to 10.81% from 16.04% based on the end-March 2016 figures.
“The repurchase of the AT1 instruments has the potential to lower the subordination under Moody's Advanced LGF analysis which currently results in a one notch ratings uplift for the Caa1 deposit ratings,” Moody’s wrote.
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