Bank Asya Penalized in Erdogan-Gulen Brawl Over Graft Probe

Among all the casualties of the feud between Turkish Prime Minister Recep Tayyip Erdogan and U.S.- based cleric Fethullah Gulen, none has been punished more than Asya Katilim Bankasi AS.

Shares in the Islamic bank have slumped 46 percent since Dec. 16, the day before a graft probe targeting the government became public, the biggest drop on the nation’s benchmark stock index, which lost 17 percent in the period. It trades at a multiple of 3.3 to projected 12-month earnings, widening the spread with Albaraka Turk Katilim Bankasi AS, Turkey’s only other publicly-traded Islamic bank, to a record 2, according to data compiled by Bloomberg.

Turkey’s currency has weakened to records against the dollar and euro and bond yields have surged as three ministers resigned and the head of a state-run bank was arrested in the wake of the corruption investigation. Labeling the probe a “coup attempt,” Erdogan removed thousands of police officers and prosecutors on suspected ties to Gulen’s movement, while pro-government media has targeted companies for alleged ties to the cleric.

“Bank Asya has found itself a casualty of the political conflict between Erdogan and the Gulenists,” Julian Rimmer, a broker at CF Global Traders in London, said in an e-mail yesterday. “Its connections with the latter have left it vulnerable to the machinations and reprisals of the former.”

There were some who “bought dollars” before the probe erupted, profiting from the lira’s depreciation in the aftermath of the operation, Interior Minister Efkan Ala said Dec. 29, according to the state-run Anatolia news agency. Two days later, Sabah newspaper said Bank Asya was being investigated for buying $2 billion shortly before Dec. 17. The bank denied the story in a Jan. 6 statement.

‘Slander Campaign’

“A few large companies” withdrew deposits from Bank Aysa following the “slander campaign,” Chief Executive Officer Ahmet Beyaz said in a Jan. 22 interview with BloombergHT television. Net outflows from the bank reached 2 billion liras, Istanbul-based Tera Brokers said in a Jan. 28 e-mailed note, citing a conference call with analysts.

Bank Asya did not respond to a request for comment after its public relations agency representative was contacted by phone and e-mail yesterday.

The bank met half of withdrawn deposits through sukuk debt it holds and central bank facilities, Hurriyet newspaper cited Beyaz as saying on Jan. 23. It also sold an 18 percent stake in retail chain Yeni Magazacilik AS for 298 million liras ($133 million) and said it will raise capital to 1.2 billion liras from 900 million liras.

‘Negative Newsflow’

The shares rose 1.9 percent to 1.09 liras at the close in Istanbul today. The Borsa Istanbul 100 Index fell 0.5 percent.

With 28.4 billion liras in assets, Bank Asya is Turkey’s biggest Islamic bank, according to third quarter data from the Participation Banks Association. It is followed by Kuveyt Turk Katilim Bankasi AS, Turkiye Finans Katilim Bankasi AS and Albaraka Turk, the bank majority-owned by Bahrain’s Albaraka Banking Group. The four lenders account for 5.6 percent of Turkish banking assets, association data show.

Bank Asya’s net income rose an annual 21 percent to 60.1 million liras in the third quarter last year. That compares with 51.6 million liras for Albaraka, down 18 percent from a year earlier. Bank Asya is predicted to report fourth quarter profit of 55.4 million liras, according to the average of 10 analysts’ estimates on Bloomberg.

“The bank has seen relentlessly negative news flow, a run on deposits and significant withdrawals from state-owned companies,” CF Global’s Rimmer said. “No wonder its share price has halved.”

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