Istanbul skyscraper casts shadow over Greece’s banking ambitions

Istanbul’s Crystal Tower is a 35- story symbol of diverging fortunes.

Due for completion next year, the 303 million-euro ($383 million) glass diamond-shaped skyscraper will be the headquarters of Finansbank AS in the biggest city of a country whose economy has more than doubled in the past decade. For the Turkish bank’s Greek owner, National Bank of Greece SA, it reflects what might have been.

The purchase of Finansbank eight years ago was a rare success in Greece’s drive to make its banks supreme in southeast Europe, while also forging ties between two traditional enemies. Now, National Bank faces the prospect of selling almost half the lender on the cheap to satisfy European banking rules after receiving state aid during a debt crisis triggered in Athens.

“The acquisition paved the way, at least on paper, for the creation of a major banking group in southeastern Europe,” said Wolfango Piccoli, managing director at Teneo Intelligence in London. “It was the first major Greek-Turkish deal at a time when the improvement in the relationship between Athens and Ankara was still not an easy sell in Turkey.”

National Bank hired Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. last month for a sale of Finansbank shares, people with knowledge of the matter said, asking not to be identified as the information is private.

Reluctant seller

The sale will mark the latest retreat by Greek banks from the region they once considered their playground.

The 40 percent stake National Bank is required to sell by the end of 2015 might raise about 1 billion euros for the Greek lender, according to estimates from Citigroup Inc.

National Bank may start with a public offering of 20 to 25 percent in the next four months, and there is no plan to sell a majority stake, according to a person close to the process who asked not to be identified because the discussions are private.

“We were quite reluctant to let go of the minority stake,” National Bank Deputy Chief Executive Officer Paula Hadjisotiriou told analysts on Aug. 28 when asked whether she would consider selling a majority stake. The bank said last week it had nothing to add to that statement.

Finansbank accounts for about a quarter of National Bank’s 111 billion euros of assets. Second-quarter profit jumped 28 percent to 85 million euros, more than the Greek company reported as a group after stripping out one-time gains.

Lower prices

Another reason for the reluctance is that prices for Turkish banks are relatively low at the moment, according to Kerem Baykal, fund manager at Ak Yatirim in Istanbul. He says the present price to book value for bank stocks implies a 24 percent discount compared with the five-year average.

National Bank “could get more value out of its stake had it come to market at a more favorable time,” he said.

In 2006, National Bank fended off Citigroup, which later bought a stake in Akbank TAS. Spain’s Banco Bilbao Vizcaya Argentaria SA and Italy’s UniCredit SpA have also bought into the largest of Turkey’s private banks in recent years.

At the time of the purchase, Greece’s economy was growing at a pace of more than 5 percent a year, while Turkey was recovering from a financial crisis that had led to more than 20 banks collapsing or being saved by the government.

Three years later, then Greek Prime Minister George Papandreou revealed a budget deficit four times above European limits, sparking a crisis in the euro area that forced Greece into a 240 billion-euro bailout.

Stress tests

After being propped up by a 50 billion-euro state-aid fund, part of European Union and International Monetary Fund rescue measures, all Greek banks need to significantly scale back in countries ranging from Serbia to Egypt after retracing the footsteps left by the Ottoman Empire, the precursor to modern- day Turkey, of which they were once a part.

Of the four included in European Central Bank-led stress tests this month, only National Bank has a reprieve to continue banking outside Greece, with the European Commission noting “strong” Turkish operations.

The lender goes into the tests carrying 16 billion euros of bad loans, 20 percent of such debt at all Greek banks. The bad- loan ratio for National Bank’s Greek business is 29.3 percent, compared with 5.5 percent for Finansbank.

The caveat is that National Bank must reduce its now 99.8 percent holding in Finansbank, a unit that has bolstered profit for eight years by tapping into an expanding Turkish economy that is already three times bigger than Greece.

Healing process

With a population of 75 million, Turkey is bigger than Greece, Bulgaria, Romania and Serbia combined. Despite lending growth averaging above 25 percent from 2010 through 2013, there’s still room for growth: 42 percent of Turks don’t place their money in a bank.

In National’s home market of Greece, the process of repairing a banking system hit by deposit flight, the deepest recession since World War II, and the biggest restructuring of sovereign debt is only just beginning.

“The sheer amount of healing and repairing that needs to be done domestically dwarfs any longer-term strategies,” said Nikos Koskoletos, head of research at Athens-based Eurobank Equities. “Southeast Europe was the El Dorado for all Greek banks that had a saturated domestic banking market and were all going for the under-penetrated, under-banked, growth opportunity of emerging middle-class. Now it’s all in reverse.”

As the militant group calling itself Islamic State advances on Turkey’s southeastern borders and the EU struggles with a slow recovery, the government in Ankara lowered its 2014 growth forecast on Oct. 8 to 3.3 percent from a previous 4 percent.

Istanbul growth

That compares with the 0.2 percent expansion expected in Greece, the first increased in gross domestic product in seven years, based on the 19 economists surveyed by Bloomberg. Turkey’s economy has grown by 6 percent on average since 2010.

The main index at the Borsa Istanbul, the centerpiece of Turkish President Recep Tayyip Erdogan’s plan to make Istanbul a regional financial center, has gained nearly 10 percent this year. The Athens General Index, which was cut to emerging market status last year, has fallen 19 percent.

Istanbul’s crop of skyscrapers in the Levent commercial district where Finansbank will have its new headquarters are emblematic of the city’s transformation.

Finansbank is “the golden goose,” said Timothy Ash, chief economist for emerging markets at Standard Bank Group Ltd. in London. “This is a great franchise. In Bulgaria, Romania and Ukraine, Greek banks paid top dollar for existing franchises that basically probably had some questionable underpinnings.” [Bloomberg]

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