SDIF CHIEF REVIEWS A SUCCESSFUL BUT TURBULENT YEAR

UNCLAS SECTION 01 OF 02 ISTANBUL 001577

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN EINV PGOV CASC TU
SUBJECT: SDIF CHIEF REVIEWS A SUCCESSFUL BUT TURBULENT YEAR

REF: A. ISTANBUL 43


B. ISTANBUL 644

This message is sensitive but unclassified and contains
privacy act information. Not for internet distribution.
This message was coordinated with Embassy Ankara.


1. (SBU) Summary: In a wide-ranging conversation with
visiting Ankara Econ Counselor and Istanbul P/E Chief, the
Chairman of Turkey's Savings Deposit Insurance Fund (SDIF),
Ahmet Erturk, reviewed his organization's progress in
recouping Turkey's losses from the 2001 banking crisis.
Noting that the fund this year for the first time made a
significant payment to the Turkish Treasury, he expressed
hope it ultimately would collect up to 10 billion USD. On
specific cases, Erturk predicted that the fund will soon
reach a settlement with Motorola regarding its outstanding
receivable from Telsim (the Uzan-owned cellphone operator the
TMSF has seized and will sell on December 13). Regarding the
situation of American citizen Clifford Polley (reftels),who
has been subject to a TMSF travel ban since 2002, he noted
that a proposal permitting him to travel will soon be
presented to the TMSF board. Erturk conceded that his
organization wields extraordinary and almost unfettered
power, but argued that "extraordinary circumstances require
extraordinary solutions." He concurred with the judgment of
many bankers here that institutionalization of such powers in
Turkey's new banking act is not a long-range solution, and
that these provisions should be revisited. End Summary.


2. (SBU) A Busy Agenda: Erturk noted that he has been much
preoccupied of late with the recently concluded
non-performing loan sale (NPL) won by a partnership between
Lehmann Brothers and Turkey's Finansbank. He stressed that
the sale is close to the final phase, though he predicted
that there will be legal disputes and challenges. He added
that the fund has already turned over 1.5 billion USD to the
Turkish Treasury, and will focus in coming months on selling
Uzan family assets to recoup losses from the major fraud that
was perpetrated at the family's Imar Bank. The assets are
divided into three groups: the media group (with 10 sale
units: two television stations, seven radio stations, and
"Star" newspaper),the cement factories (nine in total),and
Telsim, which will be sold on December 13. Questioned about
a letter the Consulate and Embassy recently received from the
Uzan's lawyer warning U.S. nationals away from the planned
sales, Erturk was dismissive, pointing out that the Fund has
been taken to court 200-300 times and has yet to lose.


3. (SBU) A Motorola Deal: Erturk noted that the fund is in
intense negotiations with Motorola to settle its
multi-billion dollar claim against Telsim (resulting from a
deal in which the Uzans defrauded Motorola out of 2.2 billion
USD). He conceded that the negotiation has taken a long
time, and said that the problem has centered not on the
financial side but on the question of a payment guarantee
from the Turkish government in the event the sale of Telsim
were overturned, given that the payment was to come out of
sale proceeds for the company. Erturk said the two sides
have agreed to change the model: Motorola will still receive
20 percent of the sale price of Telsim (at least 500 million
USD),but it will receive a major portion in advance, so the
guarantee issue can be set aside. Erturk termed the proposed
settlement a good transaction for both the GOT and Motorola:
the fund will sell a "clean" asset, resulting in a higher
valuation, while Motorola will avoid a long legal labyrinth.
He added that the fund's agreement with Nokia (which was
similarly defrauded) has already been finalized. That
company will receive 7.5 percent of the sale proceeds, and
may request renegotiation to match Motorola's payment terms,
if it finds them more favorable.


4. (SBU) Law and Power: Erturk conceded that his organization
has unmatched (and almost untrammeled) authority, but argued
that the special situation resulting from the 2001 banking
crisis and other banking abuses such as Imar Bank required
such an approach. Without such power, he stressed, the Fund
would have been unable to recover any assets, as it could not
have "followed the money." Regarding the legal situation of
Demirbank and Kentbank, the takeovers of which were later
overturned by the Council of State (Danistay),Erturk noted
that the SDIF is not a party to the case, rather the Turkish
Banking authority (BDDK) was the defendant.


5. (SBU) Suzer Group: When asked his response to the argument
that the Suzer Group has been advancing in Washington that
the Turkish government has failed to respect the rule of law
in refusing to return Kentbank to it in accord with the 2004
Danistay decision, Erturk characterized the decision as
"devoid of meaning." If it had been taken immediately after
the takeover, he argued, it could have been implemented, but
coming after passage of several years, and after the bank had
been merged into other institutions, it could not be carried
out. Instead, he suggested, the Suzers should pursue a case
for monetary damages. He predicted, however, that given the
government's expediture of 2 billion USD to settle claims
against Kentbank, the court would likely find there was no
equity in it. As an aside, Erturk suggested that the Suzers'
concern about legalities is not unreserved: another court has
ruled that its Suzer Plaza Building housing the Ritz Carlton
should be torn down-- a decision the family is obviously not
eager to see carried out. (Note: Erturk appears to have been
referring to a Danistay decision that the permit for the
building was improperly granted. A separate case by Istanbul
Technical University seeking the demolition of the structure
also is working its way through the courts. End Note.)
Erturk added that the Fund has also had difficulty with the
Suzers in that they have "stolen" assets by moving them
offshore where they "cannot be followed."


6. (SBU) Banking Law: Regarding Turkey's new banking law,
Erturk concurred with concerns we have heard from some
bankers that the new banking law goes too far in making
permanent the SDIF's power and criminalizing normal banking
activity (under the draft, bankers are personnally liable for
twenty years for any bad loans they approve, and they and
their relatives can be pursued legally to recover damages).
He said "they are right" in arguing that the provisions are a
disincentive to banking, and added "there are articles in the
law I would not accept." He disputed the suggestion that the
SDIF is responsible for the provisions, however, attributing
them to the will of the Turkish Parliament. As a result, the
law makes no distinction between the "normal risk taking"
that is involved in banking and fraudulent activities. The
provisions, he concluded, should be revised in the near
future.


7. (SBU) Clifford Polley: Erturk indicated that he has
received Congressional correspondence on the case of Clifford
Polley, who has been under a SDIF travel ban since 2002 as a
result of his brief service on the board of his
father-in-law's (Dinc Bilgin's) Etibank, which was taken over
during the crisis. Erturk believes the matter will soon be
resolved, and said he has directed the drafting of a
recommendation to the SDIF board permitting Polley to travel.
It could be considered as early as September 16, he said, if
the paperwork in the file is complete. (Note: Consulate
subsequently arranged a meeting between Polley and the Fund
on September 14 to ensure that all necessary material has
been presented. End Note.) As an aside, Erturk noted that
collections from Bilgin's Media Holding Group have been
significant, and that most of the group's debt to the
government should ultimately be recovered.


8. (SBU) Assistance: In closing, Erturk expressed
appreciation for the Treasury Department's continuing
technical assistance to the Fund, which he characterized as
extremely helpful to the Fund's successful completion of its
initial sale of non-performing loans. He noted that
cooperation with U.S. entities is continuing on other fronts,
as the Fund works with the FDIC in its efforts to implement a
new system of deposit insurance that charges premiums to
banks based on their risk profile. The SDIF will be able to
focus increasingly on this core function, he predicted, as it
wraps up its collection activities.


9. (SBU) Comment: Erturk was relaxed and open during the
meeting, divulging more on the Motorola case, for instance,
than he had in previous sessions. As his continued media
blitz also demonstrates, he appears comfortable with what the
Fund as accomplished to date, and believes he has a good
story to tell the public. End Comment.
JONES