Hungarian general creditbank

From the Bank's foundation to the end of the First World War

The Hungarian General Credit Bank (MÁH) was founded in 1867, the year of the Compromise. At that time, the obligation for the government to license companies was abolished, which led to a fever of company and bank formation in Hungary. Among the founders of the bank are not only prominent merchants and bankers from Pest, but also foreign financial institutions. The most important of these was the Rothschild banking house in Vienna, which was also a strategic partner. With a paid-up share capital of HUF 6 million, MÁH became the country's largest and most capital-rich bank right from the start. Its activities were characterised by the so-called credit mobilier type of banking, i.e. it covered the whole spectrum of banking activities, with the exception of the issue of mortgage bonds, with a particular emphasis on participation in the establishment of industrial companies. By the end of the 19th century, MÁH had become the domestic bank with the most extensive industrial interests. In addition, two of the most significant features of the bank's history were its close (state-banking) relationship with the Austrian Creditanstalt Bank (CA) and the Hungarian State. These two relationships also helped the bank to survive the financial crisis of 1873 with relatively small losses.

In December 1870, the MÁH concluded a cartel agreement with CA, which was owned by the Rothschilds in Vienna and had had a branch in Pest since 1857. Under the terms of the agreement, CA closed its branch in Pest and undertook not to reopen a branch in Pest, but to entrust the management of its business in Pest to MÁH. MÁH entrusted CA with the management of its Vienna operations. CA was also involved as a silent partner in the financing of MÁH's banking department (which was responsible for securities, bills of exchange and deposit operations) and its goods department (which dealt with commodities trading, the granting of commodity loans and advances and the distribution of commodities). He therefore received a substantial share of their profits. In addition, above a certain limit, the two banks also shared in the profits of each other's investment and corporate finance activities, and CA also provided a credit line to MÁH. In return, CA was granted two seats on the board of MÁH. From 1890 onwards, the contract was amended several times, with the result that the autonomy of the SAI steadily increased. Under the 1890 amendment, MÁH repaid CA's silent partnership interest, CA gave up the extra board seats it had received in return, and from 1900 onwards, MÁH's obligation to pay a share of the profits was replaced by a fixed annual commission. Despite the relaxation of contractual obligations, the relationship between the Rothschild group and CA and MÁH remained close, both in terms of business relations and in the management of the bank, since the ownership link and, through it, representation on the board of directors, was maintained.

Since its creation, MÁH has been actively involved in the management of state finances, the financing of public investment projects (e.g. railway construction) and the financing of state bodies. In 1873, the Ministry of Finance also concluded a contract with MÁH for the day-to-day management of the State's finances, including the sale of State bonds on a proxy basis, both domestically and abroad, thus officially making MÁH the State's main bank. From 1888 onwards, the contract was substantially amended several times, each time in response to economic and financial developments, as MÁH's role as State banker became increasingly stronger. The relationship between the MÁH and the Rothschild Group played a decisive role behind this relationship, as the successful international sale of state loans required the capital and contacts of the Rothschild Group.

During this period, the MÁH continuously built up its branch network and included other financial institutions in its sphere of interest, and by 1912 it already owned 15 credit institutions.

In the first years of the First World War, the MÁH significantly increased its international presence in the central powers, which later caused the bank serious losses. The bank's role as a state banker was further strengthened during the war. In addition to its involvement in the underwriting of war loan issues, it bought large amounts of war loan bonds itself, led the consortium for the sale of grain and was involved in the purchase of state commodities. He also increased the role of the war companies in his corporate acquisitions and financing activities.

From the end of the First World War until the end of the bank

After the First World War and the break-up of the Monarchy, there was a strong French drive to establish economic dominance over the Central European region. As a result of negotiations between the French and Hungarian governments, following a capital increase in 1923, the largest shareholder of MÁH, with 25%, was the French Union Européene bank. In addition to this, the Austrian Rothschild and CA group held a stake of 191T3TB, some German banks held a combined stake of 7.51T3T, while the domestic stake was 481T3T. Subsequent capital raisings in the inflationary period of the 1920s were also dominated by foreign investors, with German and British banks acquiring additional stakes in these years. Despite the dominance of foreign ownership, the management of the MÁH remained in the hands of the management representing the Hungarian owners, but from then on all substantive decisions had to be taken with the agreement of the dominant foreign owners. The foreign connections helped MÁH to maintain its role as a state banker, as they gave it access to international financial markets, which was essential for the issuance of treasury bills and government bonds. MÁH also used its international contacts to arrange foreign loans for Hungarian enterprises. In addition to this, MÁH continued to build up its banking and corporate interests in the 1920s, and by 1929 it had 18 banks and savings banks and 75 industrial companies under its umbrella.

The financial crisis of 1931 peaked in Hungary after the collapse of CA, which also had a significant stake in MÁH, and almost took MÁH with it. It was only able to meet the immediate deposit withdrawals with the help of the MNB. In addition, the public and private companies that were among the bank's clients were unable to repay their loans, and MÁH lost 441T3T of its equity capital in the first few months of the crisis. MÁH, which was also a state-owned bank, was rescued by the state, which feared the collapse of the financial system. It bought 301T3T of the bank's shares, subject to strict cost and staff reduction conditions, and also provided loans, some in cash and most in treasury bills. The State assistance was only just sufficient to maintain operations. MÁH's situation was settled in 1938, with the bank's own rationalisation programme, substantial further state and central bank assistance and the merger with the Hungarian General Savings Bank in March of that year.

During the Second World War, the role of MÁH as a state banker was strengthened, and it financed the state's need for money for war expenditures with large sums. It also played a major role in meeting the corporate financing needs of the burgeoning war economy. The war years thus led to a strengthening of the MÁH. After the war, the MÁH was involved in the disbursement of so-called start-up loans, but here it was only an administrative agent for central decisions. The 20% MÁH share package, formerly owned by French and German banks, was transferred to Soviet ownership at the end of the war as war reparations. In 1947 the domestic share of the bank was nationalised and in 1948 the Investment Bank was established on the basis of MÁH.

Sources:

Ferenc Frankovics (1969) One Hundred Years of the Hungarian General Credit Bank, Új Európa, 8. évfolyam 8-9. szám, 218.p

György Kövér (2012) Austrian credit - Hungarian credit. The Cartel of the Austrian Creditanstalt and the Hungarian General Credit Bank, In.

György Kövér (2012) The Rothschild Consortium, the Hungarian General Credit Bank and the Hungarian public debt (1873-1914), In: The Legacy of the City of Pest, 333-358.

Pólya Jakab (1895) The history of the banks of Budapest in the years 1867-1894, Márkus Samu book printing house, Budapest

Ágnes Pogány (2023) The last refuge: managing financial crises in Hungary. In From the Great War to the Great Crisis, Studies in Banking and Money History of Hungary between the Two World Wars, 179-202, L'Harmattan

György Ránki (1983) The Hungarian General Credit Bank in the 1920s. In.

György Tallós (1995) A Magyar Általános Hitelbank (1867-1948), Közgazdasági és Jogi Könyvkiadó

Founded on 18 September 1867.

Date of cessation: 1947

The founders were merchants and bankers from Pest and financial institutions from Austria and Württemberg, including Frigyes Kochmeister, chairman of the Pest Stock Exchange and the S.M. Rothschild bank in Vienna.

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Author: by Dr. Mérő Katalin