Court approves seizure, asset sale of Pamukbank, keeps reform intact

ISTANBUL (Reuters) – A top Turkish court yesterday rejected a move to block the seizure and sale of troubled Turkish bank Pamukbank, the state-run Anatolia news agency said. The ruling should help Turkey’s bank watchdog to keep a key pledge to the IMF under a $16-billion pact that it will dispose of the bank’s assets. Turkey’s banking watchdog moved to seize the bank, controlled by industrial group Cukurova Holding, in the latest cleanup of the country’s crisis-hit banking sector. Analysts are closely watching Turkey’s adherence to the IMF deal amid worries about political instability and electioneering ahead of November 3 polls. The watchdog has also taken two seats on fellow group bank Yapi Kredi’s board, chaired by Cukurova owner and influential Turkish businessman Mehmet Emin Karamehmet. Investors fear it may demand that Yapi Kredi assets are used to help raise Pamukbank’s capital. The court appeal against the seizure and sale of Pamukbank was made by Cukurova. An IMF-backed audit of Turkey’s banks revealed a capital shortfall at Pamukbank of some $2 billion. A swathe of bad loans that Pamukbank failed to recover, most of them extended to Cukurova holding companies, sparked the bank’s June seizure, the watchdog has said. Four banks have expressed interest in acquiring Pamukbank, including local banks Oyakbank, Disbank and Is Bankasi, as well as French bank Societe Generale. Pamukbank was Turkey’s seventh-largest bank by assets prior to its seizure, according to data published by the Turkish bankers association. Leading mobile phone operator Turkcell also operates under the Cukurova group of companies. Turkcell was trading down 1.2 percent at 8,200 lira. Turkey has rehabilitated and sold or closed most of the 20 banks it had seized during recent financial turmoil. Shares in Yapi Kredi Bank were trading down 6.67 percent at 1,050 lira after the announcement. The main stock index dipped to trade down 0.97 percent on the news but later recovered to end the day up 0.07 percent, to 9,263.78 points. Overall, Turkish markets were mixed yesterday, as investors stayed away because of continuing political uncertainty and worries over the chance of a US-led attack on Iraq, brokers said. The busiest May 7, 2003 bills weakened to yields of 72.41 percent from Wednesday’s 71.70 percent in thin trade. Elections due on November 3 mark a crucial milestone for the IMF client and US ally with borders on Iraq. But investors worry over what kind of government will emerge and if and when the USA will attack Iraq. «The post-election situation is far from clear. Additionally, falls on exchanges abroad have a negative impact. We could expect the market to stay like this until the election,» said Haldun Sertel of Can Securities in Istanbul. The lira closed at best bids of 1,661,500, firmer than Wednesday’s 1,667,000 to the dollar, with traders reporting buying of dollars by state banks offsetting a wider market tendency to sell dollars. «Actually, the market is generally selling,» said one trader, who asked not to be named. «But the state banks are still buying.» The lira, shares and debt all rose slightly on Wednesday on signs that moves to upset the planned elections were running out of steam. But analysts worry the election may not bring a market-friendly government able to implement the IMF pact decisively as Turkey works to tackle a massive debt load and emerge from its deepest economic slump since 1945. Signs a US-led attack on neighbor Iraq may still be on the cards were also precluding a rally from lows reached amid recent political turmoil sparked by a government tiff over EU reforms, brokers say. Investors would also be looking ahead to today’s treasury auctions of 366-day dollar and euro-denominated debt after two debt auctions earlier in the week saw demand hit by politics.