‘I’m having a very good crisis,’ says Soros as hedge fund managers make billions off recession
George Soros said the current economic crisis has been the culmination of his life’s work
A hedge fund manager who predicted the global credit crunch has said the financial crisis has been ‘stimulating’ and the culmination of his life’s work.
George Soros, who predicted the global financial crisis twice before, was one of the few people to anticipate and prepare for the current economic collapse.
Mr Soros said his prediction meant he was better able to brace his Quantum investment fund against the global storm.
But other investors failed to take notice of his prediction and his decision to come out of retirement in 2007 to manage the fund made him $US2.9 billion.
And while the financial crisis continued to deepen across the globe, the 78-year-old still managed to make $1.1 billion last year.
‘It is, in a way, the culminating point of my life’s work,’ he told national newspaper The Australian.
Soros is one of 25, top hedge fund managers from across Wall Street who have defied the credit crunch crisis to reap a total of $11.6billion (£7.9bn) last year.
The Guardian (London) January 21, 1994
INSIDE STORY: THE SPECULATOR; Three years ago he was just another Wall Street drone. He amassed fortune but little fame. Then George Soros began to invest in Eastern Europe, gambling on people instead of money. Today, the man whose currency dealing forced Britain out of the EMS, holds uncanny sway over 22 countries. Michael Lewis joined him on a whirlwiind trip round the Soros Empire
By MICHAEL LEWIS
Soros had boyhood friends in Hungary put him in touch with Hungary’s leading dissidents: Istvan Rev, Miklos Haraszti, the coincidentally named Janos Kis. Separately, Soros befriended a woman named Annette Laborey, who since 1974 had been running from Paris an underground network of nonconformists from Eastern Europe. “In those days,” recalled Laborey, seated beside me on Soros’s jet, “the only capital was the network of confidence and trust. George came to me and said, ‘How much do you need?’ I said, ‘$ 10,000 would be really helpful.’ He looked at me and he said, ‘Annette, you must think larger.’ ” And for the next few years she did, funnelling Soros’s (anonymous) money into her network.
IN 1984 Soros opened his first office, in Budapest, and began all manner of subversive activities for which he is temperamentally very well-equipped. “I started by trying to create small cracks in the monolithic structure which goes under the name of communism, in the belief that in a rigid structure even a small crack can have a devastating effect,” he wrote in Opening The Soviet System. “As the cracks grew, so did my efforts until they came to take up most of my time.”
Says Liz Lorant, who worked with Soros from the start: “It was the excitement of what we got away with [that is irreplaceable]. We got away with murder. [For example] at that time Xerox machines were under lock and key. That was the way it was. In Romania you had to register a typewriter with the police. Well, we just flooded the whole damn country with Xerox machines so that the rules became meaningless.” In short, by the time the dust settled over the Berlin Wall – boom! bust! – Soros had accumulated a highly-charged portfolio of gratitude. The Great White Gods of Eastern Europe – Havel, Michnik, Kis, Haraszti – were all in his debt. So were all sorts of lesser-known, highly motivated people wending their way to high political office.
Hungary’s financial supervisory watchdog announced Friday it had slapped a 1.6-million-euro fine on an investment fund founded by US billionaire George Soros, for manipulating the market.
The PSzAF said it had fined Soros Fund Management LLC for transactions on the Budapest stock exchange on October 9 that led to a “significant loss in value” of Hungarian OTP bank stocks, which fell in days from 4,000 forint (13.2 euros, 17.86 dollars) to 2,500 forint.
The PSzAF “is imposing a 489-million-forint fine on Soros Fund Management LLC… for violating the rules regarding the illegal manipulation of financial markets,” the supervisory authority said in a statement on its Internet site.
The Soros Fund has 30 days to pay this record fine.
The PSzAF said the fund started putting OTP shares up for sale at 4:27 pm on October 9, just minutes before closing.
“The timing, the number and the effects of these transactions on the market point without any doubt to a an illegal market manipulation,” it added.
OTP, Hungary’s biggest bank, was already hit hard by the financial crisis, like many other banks, but then saw its share value crumble in a few days after October 9.
In a statement Friday, Hungarian-born Soros responded he had been informed of the fine but insisted that he was not involved in the transactions.
“I no longer control the Soros Fund Management’s operations, I retired last year and now only oversee the transactions to do with my private account,” he said in the statement, published by Hungarian news agency MTI.
“Soros Fund Management is cooperating with the Hungarian authorities and has also launched an internal investigation” into the illegal transactions, he noted.
He added he was “deeply sorry the Soros Fund Management had carried out such a transaction.”
NY Times, April 2, 2009 Politics Add to Economic Turmoil in Hungary
By LANDON THOMAS Jr.
BUDAPEST – The streets of London seethed with protests as the Group of 20 nations met, but this capital was arguably more unsettled.
Days before the leaders of the Group of 20 gathered to make decisions – or avoid them – that would directly affect Hungary, Sandor Csanyi, chairman of OTP, the country’s largest bank, could not conceal the stress, despite putting on a brave face.
Mr. Csanyi’s puffy red eyes showed the toll of the last seven months: the near default of Hungary on its foreign debt, the 90 percent plunge in his bank’s stock price as short sellers took aim at OTP, and, most recently, the surprise resignation of Hungary’s prime minister, which has raised questions about the government’s ability to carry out crucial economic reforms.
“Hungary is not Iceland,” he said, drinking a glass of red wine as the Danube rolled by a riverside restaurant here. “And OTP is not Citibank or RBS.”
But OTP may be more similar to its western peers than Mr. Csanyi cares to admit. Short-sellers have laid siege to the bank, calculating that it has more sour loans on its books than it is willing to admit and that its cash cushion may prove insufficient.
Like Hungary itself, which thought it could borrow its way to prosperity in a post-cold war economy that seemed boundless, OTP relied on cheaply obtained foreign capital to finance its growth – a practice followed by many of its peers in Eastern Europe.
But when the nation’s currency, the forint, collapsed last year, the foreign-denominated loans soared in value, making it extremely hard for domestic borrowers to repay their loans as the economy shrank.
This week, the bank received a $1.8 billion government loan backed by the International Monetary Fund in return for a commitment to increase domestic lending.
As for Hungary, the $25 billion agreement it signed with the monetary fund last year has put it in an awful policy vise. Mandated to squeeze its budget deficit below 3 percent of gross domestic product, the government is in no position to stimulate an economy estimated to sink by as much as 6 percent this year.
There is no painless path to recovery.
“Hungary has an uphill struggle, but we know that,” Gordon Bajnai, the economy minister, said in an interview in late March. “We need a reform-minded government.”
On Monday, Prime Minister Ferenc Gyurcsany, the former Communist who has led the country since 2004, appointed Mr. Bajnai, a 41-year-old former businessman, to lead that effort as his successor.
But furious opposition from Hungary’s right wing – which has called for elections – may limit the scope of his ambitions.
Lajos Bokros, a former finance minister, says that the alternative to not meeting the monetary fund’s conditions is bankruptcy. He worries that the forint will fall even further amid the political uncertainty – a concern underscored by downgrades of Hungary’s credit rating by Standard & Poor’s and Moody’s this week.
“Hungary is falling behind Europe,” he said. “This does not create much room for optimism.”
It is popular here to explain the acrimonious state of Hungarian politics as a consequence of an immature democracy still torn by a long dispute between former Communists and their bitter enemies on the right.
But Peter Muller, a well-known playwright, said the problem was societal in post-Communist Hungary. “We had daydreams of capitalism during communism,” he said. “But then becoming rich became a religion.”
Mr. Csanyi, 58, is certainly rich but he wears his wealth in a rough-hewn manner and is happiest when hunting wild boar in the countryside. Born poor in a small village southeast of Budapest, he spent years working in Hungary’s finance ministry before taking over OTP in 1992 when the bank was privatized.
Since then, he has overseen an ambitious expansion in central Europe, buying banks in Serbia, Bulgaria, Russia and Ukraine.
When foreigners withdrew their capital in a rush last year, OTP’s stock collapsed, as short-sellers saw it as a proxy for central Europe’s financial maelstrom.
Among the most persistent was George Soros, the Hungarian-born financier. His fund was fined $2 million by Hungarian regulators last week for having manipulated OTP’s stock price.
Mr. Csanyi’s response has been unconventional to say the least: OTP has spent $350 million buying back its stock in a bid to raise confidence in the bank. “I think now they are afraid,” he said, referring to short-sellers.
Mr. Soros – who once tried to buy OTP – has apologized, but it is by no means clear that others who have shorted OTP in the past will turn tail now that the bank has become a buyer. Instead, with the bank’s loan book under pressure, Mr. Csanyi’s decision to deploy precious capital in such a way has raised as many questions as it has answered.
Two days after Mr. Gyurcsany’s resignation, Mr. Csanyi stood behind his desk in his office, his eyes fixed on a computer screen. OTP’s stock had had a strong opening for a change, despite the political news.
With a grunt of satisfaction, he said, “1,800 forints – that is O.K.” But it was still a far cry from its high of 10,900.
“Our loan portfolio is good,” he added. “There is no reason the stock price is so low.”
All the same, many investors have doubts. Morgan Stanley, in a recent research note, forecast that OTP’s nonperforming loans would reach 15 percent in the next two years and put a big dent in profits. OTP executives accept that nonperforming loans are on the rise, but they insist that the bank’s 15 percent capital cushion and an International Monetary Fund reserve fund provide a sufficient safety net.
OTP is also negotiating a subordinated loan from the European Bank for Reconstruction and Development, a multilateral institution with a mandate to aid eastern Europe. That process has been delayed by concerns that the deepening recession in Hungary would increase OTP’s burden of nonperforming loans.
But the cash is likely to come through. As the country’s largest bank and one of the most active in central Europe, OTP – like Citigroup and Royal Bank of Scotland, and indeed Hungary itself – is just too big to fail.
Unfortunately, there may be no such reprieve for its customers.
In a small walk-up apartment on the outskirts of Budapest, George Ivanyi, a founder of the Association of Bank Loan Victims, does his best to cope with an unceasing flow of Hungarians who have come to seek advice because they can no longer pay their mortgages after the forint’s collapse. Volunteer law students sip Red Bull while they counsel couples, and amid the buzz of activity a perpetually ringing phone goes unanswered.
“I feel the desperation of the people,” Mr. Ivanyi said. “The banks are responsible – but so is the government. They should not have approved these loans.”
One woman, he recounts, was so overwhelmed when the monthly mortgage bill on her Japanese yen-denominated loan from OTP suddenly soared 50 percent that she ingested a dose of rat poison and narrowly escaped death.
OTP executives say they are doing all they can to help customers repay their debts, and the association says OTP has been cooperative in working to devise solutions.
With volunteers too busy to answer the phone, many of those looking for help come in person – like Istvan Rakitovszky, 46, a construction worker who was laid off last fall and can no longer pay his Swiss franc-denominated loan from Raiffeisen Bank, a large Austrian-based bank.
He and his wife bought a small apartment two years ago, but they can no longer keep up the payments. Last week they received a letter from a collection agency saying their house would be repossessed. “I am afraid,” said Mr. Rakitovszky, his face gaunt, his clothes shabby, his eyes far away. “We have two kids. Where will we live?”