Cablegate: Embassy Raises Pamukbank Case with Ak Vice Chairman

This record is a partial extract of the original cable. The full text of the original cable is not available.

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

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