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Ancient Hungarian Bonds Yield Great History, Not Much Cash

They may have collector value. War and political change swept away the rest.

I inherited some bearer bonds that were originally issued by the city of Budapest, Hungary, in 1914 and 1927. In 1988, I enlisted the aid of a Hungarian law firm to try and determine whether they retain any value, but the Ministry of Finance denied responsibility for the bonds. Do I have any recourse at this point? -- Nandor Vida


It appears that your only option at this point is to sell the bonds to a collector of ancient stock and bond certificates. It's a surprisingly vibrant little market; even so, it's not clear your bonds will fetch much.

Here's what I understand about your bonds. I'm not confident it's all there is to know about them, but presumably it will be of interest to you and maybe even a few other readers. After all, the story points out the ultimate fragility of all sorts of financial claims: In times of war and sweeping political change, the likes of which this country hasn't known in more than a century, investors may lose out.

The first bond (

click here to see it) was issued by Budapest, the capital of Hungary, in 1914, the year World War I broke out. It's a tax-free bond (tax-free in Hungary, that is) that paid interest at the rate of 4.8% on a principal amount of 480 crowns. Because interest rates were fixed at the time, 480 crowns was then equal to 20 British pounds, as stated on the bond, which was then equal to about $100. The term of the bond isn't clear.

Your certificate is actually a replacement bond issued Dec. 31, 1946, entitling the holder to the original bond's claim.

The second bond (

click here to see it) was issued by Budapest in 1927 during a period of postwar reconstruction and recovery. Denominated in U.S. dollars, it paid interest at the rate of 6% on principal of $1,000 for a period of 35 years -- 1927 to 1962.

It, too, is a replacement bond, issued Dec. 21, 1946. According to the translation we commissioned, the bond says on its face that it replaces a bond that was "legally declared to be void by

an annulling lawsuit" in 1945.

It also says: "The text of the original copy contains that the bond and its enclosed coupons are valid and liable from any point if they have been signed by the main institute of Bankers Trust Company or its legal successor as registrar on the certificate printed on the back."

With some assistance from my colleague

Tim Arango

, an alumnus of the

Budapest Business Journal

, I tried three lines of inquiry into your bonds: Hungary's finance ministry;

Deutsche Bank

, which acquired

Bankers Trust

last year; and Dr. Geza Patay, an attorney in Budapest who has successfully represented bondholders against the state.

You say you think your father purchased the bonds in Switzerland in the early 1940s. Patay thinks, based on the official stamps on them, they were purchased in Hungary.

In any case, if purchased after 1939, they were obligations of an enemy state at the time. Hungary cooperated with the Nazis during World War II. This would later affect U.S. citizens' ability to enlist the help of the U.S. government to get their claims paid.

The certificates themselves are replacements for originals probably lost or damaged during the war, Patay says. "During the Second World War many bonds disappeared or were damaged," he emailed from Budapest. "The temporary receipts guaranteed the same rights and obligations as the original bonds."

After the war, however, Hungary fell into the sphere of Soviet influence and those rights went unrecognized. Under Communism, "the Hungarian state no longer paid its debts, neither the interest nor the

principal," Patay writes. "During this period of time the legal way to enforce the claim was locked out too." This was evidently your father's experience; the 1927 bond still has coupons attached dating back to June 1947.

Democratic reforms came to Hungary, along with the rest of the Eastern Bloc, in 1989, making it possible for bondholders to pursue their claims in court, Patay says.

Earlier this year, he won a case on behalf of an elderly man who held a Swiss-franc-denominated bond issued in 1924 by the Kingdom of Hungary. The country's highest court ruled that the government had to pay up.

Latest Word From Budapest

But that ruling doesn't necessarily have any bearing on your bonds, Patay says.

Covering an earlier round of litigation in the case, my colleague Arango

reported (registration required;


articles free on Fridays only) that Budapest had received claims from Swiss citizens on bonds the city government had issued in 1910, 1911, 1914 and 1927, and paid a lump sum to the Swiss government to settle bondholder claims in 1950. But an attorney for the city told him: "We believe in most cases that the municipality does not have to pay."

That's certainly the view of the Hungarian finance ministry. A ministry official, Eszter Nagy, says both bonds are beyond redemption at this point.

In 1987, the government annulled a 1948 decree barring lawsuits in pursuit of the claim. But it allowed for lawsuits for only five years, starting Jan. 1, 1988. So the 1914 bond became obsolete in 1993, Nagy says.

This doesn't explain why the law firm you enlisted to help you in 1988 wasn't able to help you, however.

As for the 1927 bond, it became obsolete in 1982, 20 years after its last coupon was supposed to have been paid, Nagy says. "The reason why you cannot find these dates on the papers is that these are not the original bonds, but so-called provisional receipts issued to substitute securities most probably lost or damaged during the war," she writes.

Answering for Bankers Trust (named only on the 1927 bond), Deutsche Bank added a couple of interesting World War II-era details to the picture, but no hope for recovering interest or principal.

According to the response Bankers Trust had been providing to inquiries about the bond since the late 1960s, the 84th U.S. Congress (in session from 1955 to 1957, a period in which the Soviet Union invaded Hungary to put down a revolution, prompting some 200,000 to flee) passed a law that gave U.S. citizens limited ability to file claims against Hungary with the now-defunct Foreign Claims Settlement Commission. The ability to file claims applied only to people who'd acquired bonds before Sept. 1, 1939 (the day Germany invaded Poland), and only to bonds that matured before Sept. 1, 1947.

Bankers Trust also told investors that trading of the bonds "was suspended by order of the U.S. government in 1941," adding: "We regret that we do not have any recent pertinent information regarding the issue nor do we have any funds on deposit for the repayment of principal or interest."

A Last Resort

So what can you do if you want to realize some gain, however small, from these bonds? Sell them to a collector. The Internet makes these things very easy.

You need to find the scripophiles -- people who collect stock and bond certificates with no economic value. You can find them on


, under Coins & Stamps. There are also entire Web sites devoted to scripophily, which according to, is a 1976 coinage based on the English word scrip, meaning a document that represents an ownership right. There's also the

International Bond & Share Society and the

Washington Historical Autograph & Certificate Organization.

My suspicion that your bonds may not fetch much is based on a cursory glance at how much similarly ancient securities were going for on eBay -- mostly under $20. But if they are just what some collector is looking for, who knows?

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TSC Fixed-Income Forum aims to provide general bond information. Under no circumstances does the information in this column represent a recommendation to buy or sell bonds, funds or other securities.