US embassy cable - 03ANKARA7273

UNCLAS SECTION 01 OF 02 ANKARA 007273 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB, EB/IFD, AND EUR/SE 
TREASURY FOR JLEICHTER AND MMILLS 
NSC FOR MBRYZA AND TMCKIBBEN 
 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PTER, TU 
SUBJECT: TERROR ATTACK'S IMPACT ON FINANCIAL MARKETS 
 
 
REF: ISTANBUL 1744 
 
 
 1. (Sbu) Summary: Though it is still early to judge, Turkish 
financial markets showed initial resilience in dealing with 
today's Istanbul terror attacks.  The stock market fell 
sharply before it stopped trading. The foreign exchange, 
government security and interbank markets continued to 
function, however, and fell only modestly, albeit with low 
volume.  The Central Bank succeeded in calming markets with 
an early statement that it was adding liquidity, cutting 
overnight borrowing rates, and that it would stay open late, 
if needed.  Though it is not yet known whether the Stock 
Exchange will open tomorrow, even bombed HSBC will reportedly 
open.  End Summary. 
 
 
2. (U) Following Saturday's synagogue bombings, Turkish 
financial markets reacted calmly on Monday, with less of a 
sell-off than in international markets.  Today's bombings, 
however, raising fears of a campaign against Turkey, and 
targeting a major foreign-owned Turkish bank, HSBC, initially 
sent the stock market down sharply.  The IMKB 100 index fell 
7.37 percent to 14,617 in the first half hour after the news 
broke.  The exchange then decided to close for the day to 
calm the market. 
 
 
3. (Sbu) The Central Bank acted quickly, issuing a statement 
by mid-day.  The Bank said it would add liquidity, cut 
overnight bank lending rates from 31 to 28 percent, and stay 
open late, if needed, to allow banks to complete 
transactions.  The bank also warned market operators against 
speculating in the foreign exchange market.  The Bank's 
statement seems to have been highly effective: the government 
securities, foreign exchange, and interbank markets continued 
to function. albeit with low volume, and ended the day down, 
but only modestly.  The interest rate on the benchmark bond, 
for example, only rose from 28.69 percent at yesterday's 
close to 29.07 percent and the lira only fell from 1.458 
million per USD in the interbank market to 1.484 million at 
the close.  Comment: with the low trading volumes today, 
these numbers should be treated with caution--they may not 
indicate the levels that the markets will settle at once they 
resume normal trading. End Comment. Central Bank Governor 
Serdengecti told Econcouns that because of the HSBC bomb's 
proximity to many banks, trading virtually stopped in the 
first hour or two after the bombs.  By the time trading 
resumed, according to Serdengecti, traders slightly calmer 
mindset--helped by the Central Bank's announcement--may have 
helped avoid a sharp fall. 
 
 
4. (Sbu) Similarly, Turkish Treasury Public Finance Director 
General Tulay Saylan told Econ Specialist that the t-bill 
market traders were relatively calm though transaction volume 
almost stopped.  She said foreign investors reacted more, 
selling Turkish securities, but by later in the day even 
foreigners were trading in a more normal fashion. 
 
 
5. (Sbu) A Citibank executive told Econoff that, though they 
had adopted additional security precautions, they could not 
close unilaterally and needed to continue to honor and 
complete transactions.  He noted that the HSBC building that 
was bombed was not the locale of HSBC's operations center, 
such that HSBC had continued to operate.  According to the 
Citibanker, a HSBC executive told him the bank would, 
heroically, be open on Friday. In a similar vein, Kubilay 
Cinemre, a senior executive at Garanti Bank, also told 
econoff the markets had held up relatively well, with even 
the Eurobond market trading about where it was last week. 
Cinemre, admitted, of course, the events would add to 
Turkey's risk premium. 
 
 
6. (Sbu) On the other hand, though it is very early for 
analysis of the impact on Turkey's economy, one Istanbul 
analyst has already posited that the attacks could reinforce 
U.S. and international support for Turkey, adding to 
investors' tendency to view Turkey as a "moral hazard play," 
meaning investors can rely on continued U.S. (and therefore 
IMF) geostrategic support.  Though the attacks can be 
expected to harm the tourism sector, one Istanbul analyst 
pointed out to econ specialist that the timing--at the 
beginning of the slow winter season--might lessen the damage, 
provided there are no more attacks before the spring season. 
 
 
7. (Sbu) At 5:00 PM local time, Econ Specialist spoke to a 
stock exchange official who said they still had not decided 
whether to open Friday.  The exchange faces a quandary: if 
they stay closed tomorrow the market will remain closed 
throughout next week's Bayram holiday, only reopening, 
November 29.  If they reopen tomorrow, however, they could 
face a continuation of today's sharp sell-off.  Bankers with 
whom econoff spoke were divided on which approach made more 
sense: some arguing for the extended cooling-off period while 
others advocated reopening to demonstrate the soundness of 
the market. 
 
 
 
 
 
 
 
 
EDELMAN