US embassy cable - 03ANKARA7918

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 007918 
 
SIPDIS 
 
 
STATE FOR E, EB/IFD AND EUR/SE 
TREASURY FOR OASIA - MILLS AND LEICHTER 
NSC FOR BRYZA AND MCKIBBEN 
 
 
E.O. 12958: DECL: 12/23/2013 
TAGS: EFIN, PGOV, TU 
SUBJECT: EX-BRSA CHAIR AKCAKOCA COMMENTS ON BANKING SECTOR, 
INVESTIGATIONS 
 
 
(u) Classified by Economic Counselor Scot Marciel.  Reasons: 
1.5 (b,d) 
 
 
1.  (C) Summary:  Ex-BRSA Chairman Engin Akcakoca complained 
to us recently that the police raid on his house, which 
uncovered confidential documents he had kept from BRSA, was a 
politically-motivated set-up.  Numerous current and former 
officials, he said, had called offering support and confiding 
that they also keep such documents to protect themselves from 
accusations and investigations.  Akcakoca warned that the 
banking sector remains vulnerable, and will have difficulty 
remaining profitable in a low-interest rate environment.  He 
reported that Cukurova Group owner Mehmet Karamehmet was 
negotiating with BRSA to reduce his Pamuk Bank-related debt 
to the state from just over $3 billion to $2 billion, and was 
also pressing to regain bank ownership rights.  On a positive 
note, Akcakoca expressed support for the proposed merger of 
Pamuk Bank and Halk Bank, and said new BRSA Chair Tevfik 
Bilgin appeared well qualified -- if perhaps a bit young -- 
to take over the job.  End Summary. 
 
 
2.  (C) During a recent lunch in Istanbul, ex-BRSA Chairman 
Engin Akcakoca offered us his thoughts on the investigation 
into his activities and on the broader banking sector.  He 
began by saying that he had resigned because Deputy Prime 
Minister Sener -- through an emissary -- had explicitly asked 
for his resignation in the wake of the Imar Bank scandal.  He 
complained that authorities had raided his house only three 
days after his resignation, while they had taken weeks to 
conduct raids on the Uzan family members, who clearly had 
engaged in massive fraud.  Akcakoca said the raids were 
prompted by an "anonymous tip" claiming that authorities 
would find Imar Bank records at various addresses, including 
at his house.  They had not found any such documents, but had 
instead uncovered a number of confidential BRSA documents. 
 
 
3.  (C) Akcakoca claimed the raids were a "set up," since 
"everyone" keeps such records to protect themselves.  He 
noted that former President Demirel, at least one Supreme 
Court Justice, and other current and senior officials had 
called him to express support and had acknowledged that they 
too keep such records.  Even Deputy PM Sener, he added, had 
publicly defended him for keeping official documents. 
Akcakokca further complained that the prosecutor assigned to 
the case was someone he had worked with on the Imar Bank 
case; unfortunately, Akcakoca had publicly criticized the 
prosecutor a few weeks earlier for failing to act more 
assertively against the Uzans. 
 
 
4.  (C) Turning to the banking sector as a whole, Akcakokca 
warned about continuing vulnerabilities, particularly in the 
context of rapidly declining interest rates.  He argued -- as 
have others -- that, in the absence of significant corporate 
lending, banks remain overly reliant for profits on returns 
from their huge investments in government securities.  They 
will book significant capital gains from these holdings this 
year, but will be unable to do so next year, given the sharp 
drop in real interest rates.  Noting that many banks already 
barely meet required capital-adequacy ratios, he warned that 
any slide into the red could bring serious problems for the 
sector. 
 
 
5.  (C) Akcakoca noted that the current government now had a 
majority of its people on the BRSA board and also would 
appoint supporters to the newly independent SDIF board.  As a 
result, he said, the government will have unprecedented power 
to "squeeze" bank owners if it so chooses.  The GOT already 
has indicated it will review all loan workouts done through 
the Istanbul approach, and could -- per Akcakoca -- also 
review and even cancel existing agreements between SDIF and 
the owners of failed banks.  He noted that Justice Minister 
Cicek has made clear that he wants to go after at least some 
of the owners. 
 
 
6.  (C) At the same time, Akcakoca complained, Cukurova Group 
owner Mehmet Karamehmet -- former owner of Pamuk Bank and 
Yapi Kredi Bank -- is negotiating with SDIF to reduce his 
debt obligations.  Under the arrangement worked out following 
BRSA's mid-June 2002 intervention, Karamehmet committed to 
repaying more than $3.1 billion over 15 years to SDIF to fill 
the hole he created in Pamuk Bank's balance sheet.  Now, he 
is proposing paying $1.9 billion over two years, and also 
asking to regain his right to own banks (Turkish law 
prohibits owners of failed banks from owning other banks). 
Akcakoca acknowledged that SDIF sometimes agreed to 30 
percent reductions in debts owed by failed bank owners in 
return for immediate payment, but pointed out that 
Karamehmet's proposed deal involved a 42 percent discount 
without full upfront payment.  (Comment;  IMF ResRep and 
others say they also have heard about this proposed deal, but 
we have not yet been able to verify the details with SDIF. 
End Comment) 
 
 
7.  (C) On a more positive note, Akcakoca said he thought 
Tevfik Bilgin, his successor, was qualified, if a bit young. 
He also expressed support for the proposed Pamuk Bank - Halk 
Bank merger, saying the two banks would complement each other 
and that it would be very difficult for SDIF to sell Pamuk 
Bank to a private buyer. 
 
 
 
 
 
 
EDELMAN