Trends

Young gun
ATTILA SZALAY-BERZEVICKY: THE NEW FACE OF THE BUDAPEST STOCK EXCHANGE
WRITTEN BY Kester Eddy

Ask Attila Szalay-Berzevicky, the new chairman of the Budapest Stock Exchange (BSE), about his age and he comes across a tad sensitive. "I’m 32. The chairman of the Prague stock exchange is also 32, and the new Czech prime minister is 34. So if you ask me if I am too young for this job, I can say there are several examples [of young leaders] in Central Europe," he retorts. In fact, having started his financial career with Budapest Bank in 1990, just after the two-tier banking system was created, he claims to be one of the "oldest players" on the Hungarian market.

Old hand or not, HVB Bank Hungary, his employer since 1999, propelled Szalay-Berzevicky into the BSE chairmanship and local headlines in mid-summer after the German bank bought a 25% stake in the Budapest bourse. This, together with stakes in other institutions in which HVB has an interest, gives HVB an effective total stake of 33% in the Budapest bourse. Since HVB (or its Austrian allies, including BA-CA) already owns the largest single stake in the Vienna bourse, the move represents the first concrete consolidation of the fractured and, even by continental European standards, tiny capital markets of Central and Eastern Europe (CEE). Szalay-Berzevicky, who admits to being involved in the deal (he personally haggled for shares over the phone for HVB), is keen to advance his vision of an expanded role for the BSE within a larger alliance of bourses in the region. "Now we have two pillars - Vienna and Budapest - that’s a good start. Obviously Warsaw, which is due to be privatized next year, is the next [possible partner]," he says.

A CHANCE FOR SURVIVAL?

For Szalay-Berzevicky, the choice is whether the Poles decide to join a big Western European alliance, such as Euronext or the Deutsche Börse, which would mean a loss of independence and next to no influence on the parent group, or to link up with the new Vienna-Budapest axis. Szalay-Berzevicky is an advocate of a "Euronext" type of union between the exchanges of Central Europe. Euronext, formed four years ago when the exchanges of Amsterdam, Brussels and Paris merged, claims to be Europe’s leading cross-border exchange. By integrating trading and clearing operations, Euronext says it has already increased liquidity and lowered transaction costs, offering traders a single trading platform, with common trading rules. These measures permit investors to access all Euronext markets with equal ease. A similar arrangement in Central Europe, Szalay-Berzevicky maintains, would provide local bourses with "a chance to stay alive, with independence and a role as equal partners. The question of independence and national symbols are important in this region."

Such an alliance, with cross listings and increased trading between the regional bourses, would create a virtuous circle, and encourage more investors and motivate new listings, he argues.

"There is very limited cross-border trading [within the region] at the moment. Poland buys some Budapest stocks, and vice versa, but we want to open the floodgates." Nevertheless, he admits that building a fully functioning CEE "Euronext" will take time, and may eventually have to await the introduction of the common currency.

PUSHING CROSS BORDER LISTINGS

Meanwhile, he is keen to build on what is already available in Budapest. That includes the ongoing merger process with the Budapest Commodity Exchange (BÁT), and a drive to fully integrate Keler, the central clearinghouse and depository. Keler is an essential component of the stock market package that ensures shareowners are recognized and transaction payments are correctly registered.

Currently, the Hungarian Central Bank (MNB) owns (or will shortly own) a 53% stake in Keler, valued at some HUF 6-7 billion (USD 30-35 million). Szalay-Berzevicky plans to raise cash to fund the purchase, probably next year, by offering a share issue and listing the BSE itself on the exchange. In addition, while Szalay-Berzevicky also aims to continue and strengthen the program begun by his predecessor, György Jaksity, to encourage welldeveloped medium-sized local businesses to come to the market, the new chairman is eyeing a previously untested market, aiming to push cross-border and dual listings on the Budapest bourse. "Outside Hungary there are two directions to go. One is Austria, where many of the companies are interested in Central Europe. We have already seen banks interested in being listed in the region, for example Bank Austria itself is now in Warsaw, Erste Bank in Prague, and now I’ve heard of a couple of other banks considering listings here. This is for them a market, and being listed on the exchanges is a kind of marketing tool, because they are in the financial news every day," he says.

The other direction is within the former Soviet-bloc, where many of the bourses are struggling to achieve adequate levels of liquidity to attract listings from their own domestic companies. "For companies in countries like Romania, Serbia or Ukraine, Budapest could be an interesting place to double list. We would not go there in a hostile way, but obviously we have to look around and promote ourselves, to say; hey, we are a possibility," he says.

RELUCTANT DOMESTIC INVESTORS

Such cross-border listings are not likely to happen overnight, however, and pursuing domestic listings might be more fruitful, at least in the near term. Yet, Szalay- Berzevicky is not quite his natural optimistic self when it comes to the home market, harboring concerns about the issuers' side and the willingness of Hungarians and Hungarian institutions to invest in equities. "Unfortunately, here [in Hungary] it is easier for business leaders to go to a bank and apply for a loan, rather than go out and open their company up in front of shareholders and the public. If you come here and get listed you will be a transparent company, and obviously most managers needs a change of mindset for this." He maintains Hungarian investors also need a change of mindset. Pension and investment funds - attracted to government bonds for high yields - for the time being typically hold only 10% of assets in equities. They will have to consider investing more heavily into equities as interest rates will eventually come down, as they must if Hungary is to enter the eurozone according to the timetable of 2010, Szalay-Berzevicky believes. The public is a different matter. "People are just not saving. There are more and more loans being taken out, in euro and other foreign currency, and the Hungarian society is getting very indebted, rather like the USA. So we have to promote saving, jointly with the government, because the [modern] state is not going to take good care of you," he says. Once savings begin to grow again, the public must learn to think beyond the bank account and think of securities, and then in turn to see holding stocks as a long -term strategy. "Buying shares is not a short-term investment. Short term is a casino, it’s gambling. People need to understand that if they look at the long-term performance of stock markets around the world, these - Japan excepted - outperform inflation by far, and other [savings] instruments," he says.

TEACHING THE PUBLIC

Hence Szalay-Berzevicky is keen to continue and even expand the stock exchange "road shows," which in the past year visited provincial cities around Hungary in an attempt to reach out to potential investors around the country. "I intend to get personally involved on these road shows. In fact we are in discussions with the government to jointly target the public, using the media, and also with the ministry of education to get the basic [elements] of financial markets taught in high school. A new generation has to be born!" he says.

Visionary stuff. But is Szalay-Berzevicky not concerned that Hungarians will be even more suspicious of a Budapest bourse, itself a bastion of capitalist thinking, which is now majority owned by a foreign bank? "Bankers versus poor people? I don’t really think this is [right]. It’s one thing obviously that the stock exchange has to handle. There is a lot of communication and education [needed]. The stock exchange is a tool for everyone who has savings. I knew that this [move by HVB] would be seen as a foreign take-over and not be popular, but I believed in this strategy and decided to go ahead with it because, in the long term, it will be to everybody’s benefit," he replies, calmly, confidently and, almost, defiantly.

Szalay-Berzevicky: the international patriot Somewhat unusual for one of the key players in Budapest’s financial circles, the new chairman of the BSE is not from the Hungarian capital. Attila Szalay-Berzevicky was born in the industrial town of Tatabánya, 60km west of Budapest, and attended a local school and college. But when Szalay- Berzevicky’s father (now an MP in Tatabánya), a mining engineer, worked in the Middle East in the 1980s, his son Attila went to schools in Algeria and Kuwait. In 1993, he won a one-year scholarship to the Center for International Banking Studies in Istanbul, Turkey. He rates this international educational experience as "more important" than any formal qualification, and says it helped him to work with an understanding of both Hungarians and foreigners.
" I think this is one of my strengths, part of the result of my education abroad. Living abroad, I can work generally with foreigners, Austrians, Americans. I feel much nearer to the Anglo-Saxon [sic!] world than to the German world, but I can work with whoever, no problem, as long as my goals can be achieved." Szalay-Berzevicky worked to build up the share custody operation at Budapest Bank in the early 90s at a time when few knew what the words meant. When Budapest Bank sold this business to Bank Austria Creditanstalt in 1999, Szalay-Berzevicky moved banks. "HVB is handling some EUR 10 billion in assets in custody, so it is a big player. This contributes 11% of HVB Hungary’s earnings." It is this work, which gave him the inside knowledge of how stock exchanges operate, that gives him the self belief that he is the right man to think strategy at the BSE. "I know how settlement is going on across Europe. Everyone thinks you should be a broker, but brokers do not even think about how trades are settled. Why would they think about how the international infrastructure is changing?" he asks. Later work as a regional representative provided him knowledge and experience with most of the figures in the securities world of Central Europe. But for all his love of travel and foreign living, he still finds Hungary and Budapest home. "I am a patriot and a cosmopolitan. These may sound in conflict, but for me they are part of my soul."

Doing the rounds
In August, soon after taking the chairmanship of the BSE, Szalay-Berzevicky paid courtesy visits to Hungary’s Ministry of Finance, Central Bank and PSZÁF, the financial supervisory, to explain plans. "These were courtesy visits. I had to introduce strategy, our goals and myself. With [MNB governor] Járai we touched base on [central clearing house and depository] Keler. I got the promise that the Central Bank has nothing against having the entire Keler package under the stock exchange," he said. With Tibor Draskovics, the finance minister, conversation dwelled more on ways to encourage investment in the exchange, and particularly on avoiding any re-introduction of the capital gains tax, at least for the time being.
" We understand that as income from labor is taxed, so income from capital could also be taxed. But we also believe that right now the Hungarian securities market is still at a very fragile stage, and needs support from the government." With savings, especially in shares, very low in Hungary, Szalay-Berzevicky is keen to work hand-in-hand with the government to find ways of changing this, but "introducing capital gains tax would not be one of them," he said. "We expressed our concerns, but we did not expect an answer [just yet]. This is a political issue," he said.