BlackRock to Third Point Blindsided as Turkey Shares Plummet
BlackRock Inc. (BLK), the world’s biggest money manager, and billionaire Dan Loeb’s Third Point LLC. are among investors hurt by slumping Turkey stocks as a corruption probe into businessmen and politicians prompted declines.
Turkiye Halk Bankasi AS (HALKB) dropped 13 percent since its chief executive officer was detained yesterday as part of the probe, a day after a regulatory filing showed BlackRock bought 3.9 million shares. Emlak Konut Gayrimenkul Yatirim Ortakligi AS (EKGYO), Turkey’s biggest real-estate developer, posted a 12 percent two-day drop after Third Point invested $150 million last month.
Suleyman Aslan, the CEO of Halkbank, and Murat Kurum, his counterpart at Emlak Konut, were among dozens taken into custody during a probe into gold smuggling, money laundering and bribery in government tenders, state-run Anatolia news agency reported. The lira slumped and stocks dropped the most in the world after the executives were detained yesterday with the sons of three cabinet ministers by a unit of Istanbul’s police.
“Investors were blindsided by the developments yesterday morning,” Julian Rimmer, a trader at CF Global Trading UK Ltd. in London, said today in emailed comments. “Halkbank has long been considered among investors the best bank in Turkey owing to its higher return on equity.”
Halkbank said in a filing to the Istanbul bourse yesterday that documents and information had been requested in relation to the probe, without disclosing further details. Emlak Konut said its CEO was called in to give information late yesterday.
Buy Ratings
Halkbank is rated a buy by 26 of 29 analysts, according to data compiled by Bloomberg. The shares have lost 21 percent this year, compared with a 8.7 percent decline on the Borsa Istanbul National 100 index.
“The best-held bank on the Istanbul Stock Exchange falling 15 percent in 24 hours with just two weeks of the year remaining is an unmitigated disaster for many portfolio managers and now they have a dilemma,” CF Global’s Rimmer said.
Halkbank fell 0.7 percent to 13.75 liras at the close in Istanbul, after earlier dropping as much as 6.1 percent. Emlak Konut was unchanged at 2.32 liras, compared with the 2.50 liras that Third Point paid in last month’s secondary public offering.
Halkbank was favored by some investors because it is better able than some rivals to withstand both an increase in interest rates and regulatory changes intended to rein in consumer lending, Cetin Dogan, an analyst at BCG Partners Inc., said in e-mailed comments from Istanbul.
Power Struggle
The raids may suggest an escalation in a power struggle between Prime Minister Recep Tayyip Erdogan and followers of U.S.-based Islamic cleric Fethullah Gulen, who are influential in the judiciary and police force. News of the detentions led to the biggest market declines in Turkey since June, when anti-government protests roiled the nation.
Melissa Garville, a spokeswoman for BlackRock in New York, declined to comment on Turkey yesterday as did Elissa Doyle of Third Point in an e-mail from London. No one at Halkbank was immediately available to comment.
BlackRock’s purchases reported on Dec. 16 brought its holding in the Istanbul-based bank to 26 million shares, or a 2.1 percent stake. The asset manager is the second-largest shareholder after the Turkish state. BlackRock also increased its stake in Emlak Konut to 1.4 percent by buying about 500,000 shares, according to a regulatory filing on Dec. 16, making it the biggest owner after Turkish state housing authority TOKI.
To contact the reporter on this story: Isobel Finkel in Istanbul at ifinkel1@bloomberg.net
Turkey Raids Eclipse Fed as Risk Focus for Deutsche Bank
Turkish politics may become the top focus for the country’s investors, overshadowing decisions by the Federal Reserve, after stocks and bonds tumbled following the detention of prominent businessmen, Deutsche Bank AG said.
The Turkish lira slumped and stocks dropped the most in the world yesterday after the sons of two cabinet ministers and the chief executive officer of a state-owned bank were detained in a corruption probe by the financial crimes unit of Istanbul’s police force. The CEO of Turkey’s largest real estate company, whose biggest shareholder is the state housing authority, was also called in for questioning.
The raids are an escalation in a power struggle between Prime Minister Recep Tayyip Erdogan and followers of U.S.-based Islamic cleric Fethullah Gulen, who are influential in the judiciary and police force, according to Hakan Aksoy, who helps to oversee $5.5 billion of emerging-market debt at Pioneer Global Asset Management SpA in London. News of the detentions led to the biggest market declines in Turkey since June, when anti-government protests roiled the nation.
“Relations between business and the state are the key driver for emerging markets, so on the face of it this news is somewhat troubling and could represent a major escalation,” John-Paul Smith, a Deutsche Bank strategist in London, said in e-mailed comments yesterday. “Investors have been more focused on the prospect of Fed tapering and the policies of the central bank, but this may now change.”
2014 Elections
The Borsa Istanbul 100 Index fell 26 percent since Fed Chairman Ben S. Bernanke said on May 22 that he could begin to cut monetary stimulus. The U.S. central bank will decide whether to start so-called tapering after a two-day meeting that ends today.
While Erdogan will probably seek to reach a truce with Gulen’s so-called “Hizmet” movement, investors will look to local elections in March and presidential elections in August next year to evaluate the potential impact of the strife, Pioneer’s Aksoy said. Turkish markets may remain volatile until then, and he would want to see assets cheapen further before adding to positions, he said.
The Turkish lira weakened 0.3 percent to 2.0420 a dollar at 10:45 a.m. in Istanbul, the third-biggest decline among 24 emerging-market currencies tracked by Bloomberg. The Istanbul 100 stock index dropped 2.6 percent today, after slumping the most among 94 equity indexes ranked by Bloomberg yesterday.
Five local police chiefs involved in the graft probe were re-assigned, Fox TV Turkey reported today.
Gulen Schools
Suleyman Aslan, CEO of state-owned lender Turkiye Halk Bankasi AS (HALKB), and construction magnate Ali Agaoglu were among 22 detained in the investigation into bribery, corruption in government tenders, money laundering and gold smuggling, state-run Anatolia news agency reported yesterday. The raids were probably a response to government plans to close private exam preparation schools, many of which are run by Gulen’s followers, according to Timothy Ash, a London-based strategist at Standard Bank Group Ltd.
Halkbank dropped 12 percent in Istanbul, the biggest decline since at least 2007. Property developer Emlak Konut Gayrimenkul Yatirim Ortakligi AS (EKGYO)’s stock also slumped 12 percent, the most on record. Police requested documents and information from Halkbank as part of the probe, the bank said in a statement to Borsa Istanbul, without giving additional information. Emlak Konut CEO Murat Kurum was called in for questioning yesterday evening, the company said.
Yields on Turkey’s two-year notes rose 25 basis points to 9.35 percent at the close today, the biggest gain since Nov. 26, according to data compiled by Bloomberg.
Yields on Turkey’s benchmark two-year debt have risen 479 basis points from a record low close of 4.56 percent on May 17. Morgan Stanley lists the country along with Brazil, India, Indonesia and South Africa as part of the “fragile five” of countries it says are most vulnerable to capital outflows should the U.S. cut stimulus.
To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net
December 18, 2013 5:42 pm
Muslim political feud erupts in Turkish corruption probe
By Daniel Dombey in Ankara
Battle between Erdogan and preacher has long been brewing
“You know that the war already started? You know that, right?”
It was late 2012 and the war to which my interlocutor – a prominent former government aide – was referring pitted Recep Tayyip Erdogan, the Turkish prime minister, against Fethullah Gulen, the country’s most popular Muslim preacher.
At that point, the battle was just simmering – but it has boiled over this week with the arrest of dozens of people in an anti-corruption investigation.
Many of Mr Erdogan’s supporters accuse followers of Mr Gulen of masterminding the probe, which has involved the detention of three sons of leading ministers and business figures close to government.
Mr Erdogan, the most powerful leader in Turkey for at least two generations, has hit back by transferring 32 senior police officers.
Nonetheless, as the case continues, the government finds itself in a deeply uncomfortable position as allegations emerge on three fronts: corruption, particularly in the construction sector; gold smuggling, possibly linked to the export of billions of dollars worth of bullion to Iran last year; and the violation of zoning laws on building.
The causes of this conflict lie in Turkey’s recent history and the nature of the two protagonists. Mr Erdogan’s AK party and the Gulenist movement both have religious roots, but their origins are very different, while the threats to them both, which once led them into a marriage of convenience, have receded.
The AK party is successor to explicitly Islamist political parties that had deep concerns over the legitimacy of the republican state, which practised a repressive form of secularism; Turkish Islamists recoiled even from working for state institutions.
By contrast, Mr Gulen’s movement, which he has built up since the 1960s, is an heir to Turkish thinkers such as the Sunni theologian Said Nursi rather than following any pan-Islamic tradition, and rejects what it labels political Islam.
Mr Gulen encouraged his followers to learn science and mathematics – and, his opponents claim, infiltrate institutions such as the police and the prosecution service. Gulenists counter by saying their movement merely reflects views prevalent in Turkish society.
Despite their differences, when the AK party won power in 2002, it looked to the Gulenists within the bureaucracy for help.
The reason was obvious: the odds were stacked against the survival of Mr Erdogan’s government. It may have won 34 per cent of the vote, but barely five years had passed since a previous Islamist-led government had been ousted by the military. Secular institutions such as big business and big media retained their sway. The top judges were hand-in-glove with the ultra-secular army.
Mr Erdogan did indeed face overt challenges to his rule: in 2007, when the army openly threatened to intervene in politics; and in 2008, when the courts came close to banning the AK party.
That was the backdrop for investigations the Gulenists championed – probes into alleged coup plots known as Ergenekon and Sledgehammer, which imprisoned hundreds of alleged plotters, including senior military officers. Mr Gulen’s supporters called this a historic settling of accounts with Turkey’s anti-democratic past; his critics branded it a witch-hunt based on fabricated evidence and designed to neutralise opponents.
It is hard to deny that the investigations and trials went a long way to eliminating threats to the government from the military or other quarters. But that success put the AK-Gulenist axis under pressure, especially after Mr Erdogan was re-elected in 2011, with both sides complaining that the other sought too much power and was becoming less accountable.
Meanwhile, the differences in the two camps’ world views never went away, despite years of co-operation. Gulenists are friendlier to the US and Israel, and more hostile to Iran; Mr Erdogan has strongly identified himself with the ousted Muslim Brotherhood government in Egypt and is fiercely critical of the Israelis.
The reason the anti-corruption probe has hit Mr Erdogan now appears to stem from the prime minister’s push to shut down or reform the Gulenist-run pre-university cramming schools that AK officials say produce “missionaries” for the preacher. Some Gulenists admit that the schools – where students sometimes listen to recordings of Mr Gulen after normal lessons – are an effective recruitment tool.
By going after Mr Erdogan’s government as elections loom next year, the Gulenists have burnt their bridges with the prime minister and his party. Mr Erdogan makes no bones about his desire to purge the bureaucracy of Gulenists.
“In the ministries, they are trying to clean up,” said the former government aide who spoke of war more than a year ago. “But,” he accurately predicted, “a lot of stuff will come up.”
As for members of Turkey’s old secular elite, they watch the battle between their two foes as mere onlookers. “It’s like Alien versus Predator,” said one, referring to the science fiction series. “I don’t know who to root for.”
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