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Share sale reminds of a dark chapter in Turkish banking

ISTANBUL - Hürriyet Daily News | 12/24/2009 12:00:00 AM |

Seven years after being acquired by the Uzan Group in 1984, İmar Bank became the main character of the darkest chapter of Turkish banking.

Shares of three companies that owed money to the bankrupt İmar Bank failed to find buyers on Wednesday at an auction organized by the Savings Deposit and Insurance Fund, or TMSF, as a page of a scandalous chapter of Turkish banking fails to be closed.

The fund announced it will on Dec. 30 offer shares one more time. The estimated price of shares was nearly 650,000 Turkish Liras, or approximately $430,000. The fund will seek at least 70 percent of the appraised price plus bidding costs, according to a statement emailed Thursday. If the shares again fail to find a buyer, a bargaining session will be held Jan. 6.

İmar was seized by the government on July 3, 2003, and then liquidated.

Seven years after being acquired by the Uzan Group in 1984, İmar Bank, founded in 1928, became the main character of the darkest chapter of Turkish banking in the aftermath of the 2000-2001 crisis.

İmar Bank was put onto “close watch” by government auditors on June 20, 1994, but until the seizure nine years later, few knew about how the lender was run. The surveillance period displayed that nearly all resources of the bank were being used to finance the Uzan Group without security. The custodian bank founded as part of İmar Off-Shore in northern Cyprus was also being used to fund the group indirectly. Operating losses ate away into equity capital, while overall losses surpassed equity capital and spilled over to foreign resources. İmar Bank’s capital adequacy ratio had fallen below zero at the time, according to the “Raf Temizliği” booklet published by TMSF last month. “All authority was concentrated at the bank’s board, while even the managing director and his deputies did not have any authority except some details,” the booklet reads. “The information processing network was also not adequate.”

Going through the November 2000 and February 2001 crises under these conditions, the bank suffered heavy interest and currency losses, after which the Banking Regulation and Supervision Agency, or BDDK, appointed first one and two members to the bank’s board.

As part of the wider crackdown on the Uzan Group, the Energy Ministry on June 12, 2003 canceled the licenses of Çukurova Elektrik and Kepez Elektrik, both group companies, and then seized them. The seizure had an earthquake effect for İmar Bank, as its capital raising and credit repayments were largely dependent on the two energy companies. A “bank run” also did not help, as İmar sank deep into a liquidity crisis. Still, the bank continued to finance the Uzan Group with credit, while converting off-shore deposits to regular deposits unlawfully.

[HH] Shock resignations

As pressure from the regulator increased, seven members of the board, including Kemal Uzan and Yavuz Uzan, resigned on June 26, 2003. Thus the bank stopped sending information and documents to BDDK. At the time, the BDDK was also unable to act, as it only had four members instead of the regular seven. Branch directors and even low-level employees also started quitting, leaving the bank unable to conduct even its daily routine. Meanwhile, the Uzan family members were transferring their shares, trying to cut their links with the bank, a tactic they repeated at Telsim later. After being seized by the state, mobile company Telsim was bought by Vodafone in 2006 for $4.5 billion.

The most appalling part of the İmar Bank saga was its accounting and information processing system. The branches had a single register system, but the information transferred to the center was distorted afterwards, without the knowledge of branches. “With software adopted to the system, accounts were intervened in a way that is not easily possible to understand,” read the TMSF booklet. “Software were developed and the trial balance program was restrained to erase and change files, to prevent some accounts being seen in legal books and to produce new auxiliary books.” The executives also produced retrospective invoices and deleted real invoices, the booklet stated.

As pressure from authorities mounted, the bank’s automation system was shut down on July 3, 2003, never to be opened again. A raid into Merkez Yatırım, which served as a hub for the bank, revealed that hard drives were detached and backups were deleted, while many computers were only empty boxes, the hardware inside taken.

Efforts by officials later revealed that the bank had deposits of over 10 times the amount stated on June 25, 2003, namely 745 million liras. “As deposits were understated, taxes over deposit interest were shaved and the remaining amount, plus deposits hidden from authorities were siphoned to the Uzan Group,” the booklet says.

Officials also found out that the bank bought and sold bonds and other government paper, despite the cancellation of its license to do so in 1990.

Between 1994 and 2003, the state seized 25 banks, İmar among them. Mismanagement and huge losses in these banks cost tens of billions of dollars for Turkish taxpayers.

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