In response to the global financial crisis, financial institutions in advanced economies have increased their focus on risk management leading some of the big names in the industry bowing out of emerging markets with low risk-reward profile. Specifically, Turkey has been a unique stage for the transformation of the global financial system where the Western banks suffered the crisis has sold off their businesses to the financial institutions with high appetite for risk which were mostly based in Middle East. The following is a list of deals done recently in Turkish banking universe. Beside of the deals, Lebanese Audi Group entered the Turkish market starting Odeabank and has been heavily invested in it. Bank of Tokyo, Rabobank, and Intesa Sanpaolo have been the new entries for the developed countries but with invested relatively small amount of capital.
HSBC is reportedly the last Western financial giant to leave Turkey where it entered with the Demirbank acquisition in 2001. However, this time, unlike the other Western exits, there are also groups like ING Bank and BNP Paribas among bidders to acquire HSBC’s Turkish business. Also Bahrain-based Arab Banking Corp has submitted a bid while Qatar National Bank was reportedly interested. It was also rumored that Arab Banking Corp was the most aggressive bidder. ABC acquiring HSBC will be the Bahrain-based group’s first entry to Turkish market, while other bidders have already been running operations in Turkey.
Above is the financial summary of HSBC Turkey’s 2014 full year results. Considering the unit’s capabilities and the sector dynamics I estimate HSBC’s Turkish business is worth around $850 million. The acquisition of Demirbank cost HSBC $350 million in 2001.
With profitability sequentially lowering and margins narrowing, Turkey, for now, is definitely not the most suitable market to park your capital if you are looking into doing business in the financial services industry. Other than the shrinking market, the case of Asya Bank has risen the concerns around the Turkish authorities’ commitment to international norms. Still, foreign groups bidding for HSBC’s Turkish unit is a sign of the ongoing interest in Turkish market.
7/1/2015 – ING on course to win auction for HSBC’s Turkish bank – Reuters
8/3/2015 – HSBC is reportedly sold its Turkish operations to Dutch insurance giant ING for $750m, $100m below our estimate and at a discount to the book value. The point is that HSBC today announced that its unprofitable Brazilian operations for $5.2 billion at approximately 1.65 P/BV where the economy has been in recession over the last couple of quarters. This supports my criticism on the banking business in Turkey.