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DE RUEHIT #1917/01 2911411
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P 181411Z OCT 06
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RUEHC/SECSTATE WASHDC PRIORITY 6169
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UNCLAS SECTION 01 OF 02 ISTANBUL 001917 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/SE AND EB/IFD 
TREASURY FOR INTERNATIONAL AFFAIRS - J.ROSE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN TU
SUBJECT: CITIGROUP TO PURCHASE STRATEGIC STAKE IN TURKEY'S 
THIRD LARGEST BANK 
 
 
This cable was coordinated with Embassy Ankara. 
 
¶1. (SBU) Summary.  Citigroup's October 17 announcement that 
it intends to purchase a 20% share of Turkey's most 
profitable retail/commercial bank heralds the largest direct 
foreign investment in Turkey's financial sector.  Valued at 
$3.1 billion, the deal pairs Citigroup with Akbank, Turkey's 
third largest bank.  According to Citigroup Turkey Managing 
Director Steve Bideshi the decision to take a strategic stake 
in a large bank rather than take over a smaller, weaker bank 
was influenced by Turkey's history of extreme market 
volatility.  Bideshi expects the deal to be final by the end 
of the calendar year.  End Summary. 
 
¶2. (U) On October 17, Citigroup announced its intention to 
purchase a 20 percent equity share in Akbank.  Valued at $3.1 
billion this is the biggest FDI deal thus far in Turkey's 
financial sector.  Akbank, a full-service retail/commercial 
bank controlled by the Sabanci family and Sabanci Holding, is 
Turkey's third largest bank in terms of assets ($35.8 
billion) and the country's most profitable banking 
institution.  Sabanci Holding owns 34 percent of Akbank 
shares and will retain a controlling interest.  Citigroup is 
paying a 16.5% premium over the market value of the Akbank 
shares.  The deal brings the percentage of foreign ownership 
in Turkey's banking sector to 21.9%, following a wave of 
foreign purchases of stakes in Turkish banks. 
 
¶3. (SBU) Citigroup has been planning to expand in retail 
banking in Turkey for over a decade.  In the mid-nineties 
Citibank showed interest in Osmanli Bank but lost the deal to 
Garanti Bank.  In the intervening years, Citibank was widely 
believed to be interested in acquiring several small or 
medium sized Turkish banks however these rumors were never 
confirmed publicly.  Citibank officers have discussed 
unsuccessful takeover plans with us in the past without 
mentioning specific takeover targets.  During a meeting three 
years ago the then Citibank country manager told us that 
takeover plans had been frozen by corporate headquarters as a 
result of investigations into the Arthur Anderson scandal 
thus stalling expansion plans in Turkey. More recently, 
Citigroup lost out to National Bank of Greece in a bidding 
battle over Finansbank. 
 
¶4. (SBU) Citigroup's Turkey Managing Director Steve Bideshi 
has been bullish on Turkey, noting to us that Turkey compares 
favorably to the BRIC countries (Brazil, Russia, India, 
China) in terms openness of the financial sector and 
investment opportunities.  Bideshi told us that Citigroup 
agreed to acquire 20% of Akbank in a negotiated deal that 
will enable both Akbank and Citigroup Turkey to exploit the 
strengths and best practices of the other side.  For 
instance, Citibank has a fairly small branch network in 
Turkey with only 54 branches while Akbank has over 600 
branches.  Although noting that many details had not been 
negotiated, Bideshi opined that through this partnership 
Citigroup would be able to market international-type products 
through the Akbank branch network. Citigroup intends to 
retain its branch network in Turkey and will compete with 
Akbank "when we have to" according to Bideshi but will 
collaborate whenever possible. 
 
¶5. (SBU) Bideshi noted that there had been some degree of 
surprise when Citigroup announced that it would take a 20% 
share of one of Turkey's largest banks rather than making a 
complete takeover of a smaller bank.  Although there is a 
mechanism for Citigroup to increase its ownership share built 
into the deal, Bideshi explained that he believed that the 
days of the 100% takeover were over.  Without absolute 
certainty with regards to returns 100% takeovers are too 
risky, particularly of a structure the size of Akbank.  Plus, 
given Turkey's history of extreme volatility taking a 
strategic stake in a bank that had withstood volatility well 
in the past was a better bet, he explained. 
 
¶6. (SBU) Despite an official estimate of 60-90 days of review 
by regulatory agencies in both the U.S. and Turkey, Bideshi 
does not expect the review by regulatory agencies to delay 
the finalization of the deal beyond the end of the year.  His 
October 17 discussions with the Banking Regulatory and 
Supervision Agency (BRSA) and Central Bank in Ankara were 
quite positive.  Furthermore, Sabanci Holding, which must 
register the sale of shares, has assured him that the Capital 
Markets Board is unlikely to object to the sale. 
 
¶7. (SBU) Comment: The sale is striking in several respects: 
it demonstrates the continued interest in financial sector 
 
ISTANBUL 00001917  002 OF 002 
 
 
acquisitions by foreign direct investors and will help keep 
FDI numbers for 2006 (or perhaps 2007) high by historical 
standards.  It is also the third large direct investment by a 
U.S.-based group in the past year.  On the other hand, 
Citigroup's concerns about Turkish volatility and therefore 
its willingness to accept less than a controlling stake are 
indicative that despite the recent wave of FDI, risks and 
concerns remain for foreign direct investors, particularly 
for those without a local partner. 
JONES