US embassy cable - 02ANKARA8728

C O N F I D E N T I A L ANKARA 008728 
 
SIPDIS 
 
 
TREASURY FOR OASIA - MILLS 
 
 
E.O. 12958: DECL: 11/29/2007 
TAGS: EFIN, ECON, PGOV, TU 
SUBJECT: EMBASSY RAISES PAMUKBANK CASE WITH AK VICE CHAIRMAN 
 
 
REF: ANKARA 8596 
 
 
Classified by Economic Counselor Scot Marciel.  Reasons: 1.5 
(d). 
 
 
1.  (C) We met November 29 with AK Vice Chairman and MP Murat 
Mercan to highlight the risks resulting from the Danistay's 
November 22 injunction against BRSA's takeover of insolvent 
Pamukbank.  We said the decision, although taken by an 
independent judicial body, undermined the BRSA's credibility 
and added to the fragility of Turkey's already-weak banking 
sector -- problems the government would have to address. 
Moreover, it coincided with AK criticisms of the BRSA, a 
proposal by 20 AK MPs that Parliament investigate BRSA's 
takeover of Pamukbank,  and senior-level AK meetings with 
Mehmet Karamehmet, owner (through Cukurova Group) of 
Pamukbank and of 45 percent of Yapi Kredi Bank.  As a result, 
markets were voicing concern about the new government's 
commitment to further bank reform. 
 
 
2.  (C) Mercan, who is close to Prime Minister Gul, listened 
carefully but evinced some skepticism about the legitimacy of 
the Pamukbank takeover.  For example, he asked why BRSA did 
not take over other weak banks, such as Isbank.  We responded 
that he would hear mixed views from the markets on other 
banks, but that there was a consensus in the financial 
community that Karamehmet had managed Pamukbank into 
insolvency and that the BRSA was right to take it over.  We 
also noted strong support for the new government's pledge to 
combat corruption, and suggested that cleaning up the banking 
system was an integal part of that effort. 
 
 
3.  (C) Mercan asked what we thought the government should 
do.  We said that was up to the GOT to decide, but we thought 
the markets would welcome -- as a first step -- a strong 
public statement making clear that the government was 
committed to further bank reform, would not bail out 
poorly-managed banks, and fully supported an independent 
BRSA.  The GOT would also need to consider steps to address 
the short-term threat to the banking system posed by the 
return of insolvent Pamukbank and nearly-insolvent Yapi Kredi 
Bank to the Cukurova Group's control. 
 
 
4.  (C) Comment: Key players in AK Party have met a number of 
times with Karamehmet (Mercan said Party Chairman Erdogan had 
met with him three times), but have not spoken with BRSA 
officials.  They have bought Karamehmet's allegations that 
BRSA's takeover of Pamukbank was politically-inspired and 
unjust.  That belief is behind AK's sharp criticism's of BRSA 
over the past few months, and probably explains the 
government's weak response to last Friday's Danistay 
decision.  Now that the financial community and the press -- 
notably the Financial Times in its November 18 editorial -- 
have begun to express concerns about the Danistay decision 
and about AK's commitment to banking reform, we hope the 
government will re-think its views.  One positive note: 
Deputy Prime Minister Abdullatif Sener (who oversees BRSA and 
intially responded to the Danistay decision by telling BRSA 
that it was "their problem") and State Minister Ali Babacan 
have called BRSA President Engin Akcakoca in to brief them 
for the first time. 
DEUTSCH