Turkey Markets Shaken by Unsubstantiated U.S. Probe Report

Updated on
  • Local media report said six Turkish banks face penalties
  • Three Halkbank executives charged on Iran sanctions violations

Turkish stocks, bonds and the lira fell after a weekend report in a local newspaper said six Turkish banks may face penalties resulting from a U.S. investigation into their dealings with Iran, even after regulators denied the news and the publisher pulled the story.

The Borsa Istanbul Banks Index fell as much as 2.9 percent, the most since the mutual suspension of visa services by the U.S. and Turkey on Oct. 8-9 amid a deepening diplomatic crisis between the two. Turkiye Halk Bankasi AS, the state-run lender known as Halkbank, lost as much as 3.6 percent, the biggest drop among banks and the largest decline since Oct. 9. The lira fell as much as 1.8 percent against the dollar, also the most since Oct. 9.

The banks aren’t under investigation and U.S. authorities haven’t sent any information or documents to their Turkish counterparts, Mehmet Ali Akben, the head of the Banking Regulation and Supervision Agency, or BDDK, told Bloomberg News by phone on Saturday. The Capital Markets Board said the news was based on unsubstantiated rumors and should be disregarded. Both regulators said they’d take action against the report in line with Turkish law, which carries penalties for harming the reputations of the nation’s financial institutions.

The regulators were responding to a report in Haberturk newspaper that cited banking sources it didn’t identify as saying six Turkish lenders would face penalties running into the billions of dollars from U.S. authorities for alleged violations of sanctions on Iran. The newspaper later deleted the story from its website.

Visa Freeze

The U.S. Treasury said it doesn’t comment on investigations, and doesn’t telegraph sanctions or prospective actions, according to a spokesman who asked not to be named.

The U.S. and Turkey suspended non-immigrant visa services for each other’s citizens two weeks ago, a move that’s roiled relations between the NATO allies and made investors jittery. The U.S. cited arrests of American citizens and workers at U.S. diplomatic missions in Turkey for its decision, and Turkey reciprocated with a visa ban of its own. U.S. trade with Turkey was worth about $19 billion last year, making it Turkey’s third-largest trading partner.

“The ongoing political tension between the U.S. and Turkey is definitely a background factor undermining sentiment,” Julian Rimmer, an emerging-markets trader at Investec Bank Plc in London, said by email on Monday. “It’s an ongoing narrative just chipping away at confidence and so perhaps investors are being ultra-cautious especially ahead of earnings.”

Halkbank Case

Three executives from Halkbank, Turkey’s second-largest state bank, have been charged in the U.S. for violating sanctions on Iran and banking fraud. A former economy minister and an Iranian-Turkish gold trader tied to Turkey’s government have also been charged. Halkbank itself hasn’t been charged with any crime and has repeatedly denied any wrongdoing, though the developments have curtailed the share price performance this year.

President Recep Tayyip Erdogan has said the case is an economic attack backed by enemies of Turkey and has asked successive U.S. administrations to intervene. On Monday, he addressed Turkey’s worsening relations with the West in a characteristically defiant tone.

“Those who think Turkey will be brought to its knees by sanctions will soon realize they are wrong,” Erdogan said in a speech in Ankara commemorating a former Bosnian leader, without elaborating on what sanctions he was referring to. “Those who think Turkey can be taken captive with threats are unaware of their own histories.”

Raising Debt

The selloff to start the week also comes as Turkey prepares to sell bonds on Monday and Tuesday as part of a plan to raise 19.7 billion liras ($5.3 billion) from local markets in October, its biggest monthly debt offering since 2011.

“Our trading desk believes that the bond sales are likely contributing to lira weakness as well, given the high volumes on offer,” said Phoenix Kalen, a strategist at Societe Generale in London.

The lira slid 1.1 percent to 3.7105 per dollar as of 5:50 p.m. in Istanbul after falling as much as 1.8 percent in the Asia session, where liquidity is usually low. The yield on the nation’s five-year note jumped as much as 22 basis points to 11.96 percent, the highest since December.

"While there is little evidence so far, the report comes at a time when the U.S. has threatened to withdraw from the Iran nuclear deal on the one hand, and the U.S.-Turkey relationship has deteriorated as reflected by the visa crisis," Trieu Pham, a credit strategy analyst for emerging markets at MUFG Securities in London, said in emailed note to clients.

— With assistance by Kerim Karakaya, Constantine Courcoulas, and Saleha Mohsin

(Updates prices throughout.)
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