BlackRock Bets on Recovery as Turkish Banks’ Value Falls

BlackRock Inc., the world’s biggest money manager, said it favors investments in Turkish financial firms as the country’s 16-company bank index fell below book value for the first time in five years.

The book value of Turkish banks included in the index fell to 0.98 at 3:07 p.m. in Istanbul, according to data compiled by Bloomberg. The last time the ratio fell below 1 was the first quarter of 2009, when it sank to 0.96. The Borsa Istanbul 100 Index added 0.9 percent to 62,633.17.

Pressure on Turkey’s lenders is growing after the central bank increased the one-week repo rate to 10 percent from 4.5 percent at an emergency meeting this week and limits on consumer credit were introduced earlier this year. The rate increase will restore investor confidence in the bank and the country, according to BlackRock.

“We are overweight Turkey, principally through financial stocks,” Sam Vecht, a London-based BlackRock portfolio manager, said in an e-mail following the central bank meeting. The rate increase will slow the Turkish economy in the short-term, he said.

‘Troublesome Period’

“Turkish banks seem cheap, but we are just at the start of a troublesome period,” Murat Borekci, head of equity research at Yapi Kredi Yatirim Ve Menkul Degerleri AS in Istanbul, said by e-mail. “Banks’ margins were already under pressure and the current turmoil will further deteriorate margins, not to mention the impact of a possibly very strong downturn in the economy.”

Turkiye Halk Bankasi AS is rated buy by 26 of 29 analysts, according to data compiled by Bloomberg, while Yapi ve Kredi Bankasi AS, a privately held bank of a similar market value to Halkbank, is rated buy by five, hold by 22 and the equivalent of sell by two analysts.

“Consensus earning estimates are not revised and we are yet to see notable downward revisions,” Borekci said.

Bank stocks traded at almost three times the three-month average volume today. The index’s value has fallen 20 percent in lira terms since a corruption probe emerged on Dec. 17. In the same period the lira has lost 10 percent of its value against the dollar.

‘Bottom Fishing’

Turkish banks are entering their earnings season, with Turkiye Garanti Bankasi AS, the largest lender by market value, reporting fourth-quarter results today. The bank’s year-end net income of 3 billion liras ($1.3 billion) missed average estimates of 3.08 billion liras.

Halkbank has fallen more than 10 percent in the past week, making it among the weakest bank shares in emerging Europe, according to data compiled by Bloomberg. BlackRock bought 165,000 shares in Halkbank, according to a filing with the Istanbul bourse yesterday, increasing its stake in the state-run lender to 5 percent and consolidating its position as the bank’s second-biggest shareholder after the Turkish government.

Halkbank’s chief executive officer was among dozens taken into custody on Dec. 17 as part of a corruption probe roiling the country’s markets. Suleyman Aslan’s detention doesn’t concern the activities of the lender itself, according to a statement Halkbank made to the Istanbul bourse on Jan. 13.

“We think that current valuations offer attractive levels for bottom fishing, especially for banks,” Hasan Demir, an analyst at Istanbul-based Tera Brokers, said by e-mail today, citing valuations at the lowest levels since the period following the collapse of Lehman Brothers Holdings Inc. in September 2008. “Halkbank is really a bargain in my view,” he said.