Suspension of lira transactions by European banks hints at trouble to come

People walk on the deserted Istiklal Street in Istanbulss, during a four-day curfew to prevent the spread of the coronavirus epidemic. (AFP)
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Updated 19 May 2020

Suspension of lira transactions by European banks hints at trouble to come

  • Move comes after Ankara temporarily imposed similar bans on UBS, BNP Paribas and Citigroup

JEDDAH: Luxembourg-based Clearstream Banking and Belgium-based Euroclear Bank have jointly decided to suspend Turkish lira transactions over a shared electronic communications platform.

The decision is effective from May 18, according to a statement posted on Clearstream’s website.

The reason for the move was related to the liquidity restrictions on the lira due to the current coronavirus pandemic, Clearstream said in the statement. However, it recommended that its customers should maintain a buffer amount in their cash accounts in lira, and that they should monitor their securities settlements, trading on the Borsa Istanbul (Istanbul Stock Exchange) and cash transfer activity to prevent any failed transactions.

Orkun Saka, visiting fellow at London School of Economics and assistant professor of finance at University of Sussex, said it was not a good sign for international investors.

“However, it also depends on why these investors transact with Turkish financial markets. If the speculative players who simply trade Turkish lira to make profit from a possible crisis situation are discouraged by ‘sand in the wheels’ policies, it is not too bad for Turkey,” he told Arab News.

“On the other hand, if these regulations become permanent and start scaring investors who have productive capacity and intentions in the country, this could translate into a huge loss in the long term,” he added. Experts say the decision will make it more difficult for foreign investors to obtain and make transactions in lira. It is also a sign that the convertibility of Turkish lira might be at risk. Some financial analysts have also drawn attention to the possibility that Turkey might begin introducing capital controls to deflect the lira’s weakness, which would discourage external financing of the national economy.

The currency hit an all-time record low of 7.2 lira per US dollar on May 7.

On the same day, Turkish authorities introduced a transaction ban on BNP Paribas, Citigroup and UBS — a controversial move that was lifted after four days once they had all satisfied their liabilities with local banks.

The concerns over “speculative attacks” on the currency remain very fresh in the minds of Turkish officials.

Pro-government media accused unknown financial institutions of currency manipulation, while Turkish state-owned banks reportedly sold significant amounts of foreign currency recently in their battle to defend the currency against the dollar.

Last week, Turkish President Recep Tayyip Erdogan blamed the lira’s plunge on “those who think they can destroy our economy and corner us by exploiting financial institutions abroad.”

The volume of trading in lira has plummeted considerably as other foreign banks suspected further measures might be taken against them. For Saka, the recent ban on three foreign banks was a sign that Ankara will bring more regulations on capital flows to continue prioritizing a stable currency and low interest rates in the future.

“This will restrict the behavior of international investors bringing money in and out of the country. So far, the government has been temporarily applying these defense mechanisms to fend off speculation, but there is a risk that these may turn into permanent features of the Turkish financial markets,” he said.

In the meantime, the Turkish government is searching for funding from its allies to avoid a new currency crisis, similar to that of 2018, which increased unemployment and inflation rates.

Establishing currency swap lines with Japan and the UK, and expanding current facilities with China and Qatar, are reportedly on the table.

The government has also brought in stricter limits on local banks’ FX trading.

Saka noted that intervention policies, such as those applied by Turkey in 2018, are meant to be short-term, and that strict interventions are usually abandoned a few years after a crisis. “Let’s hope this will be the case for Turkey too,” he said.

Lee’s death sparks hope for Samsung shake-up, dividends

Updated 26 October 2020

Lee’s death sparks hope for Samsung shake-up, dividends

  • Shares in the company and affiliates rise; around $9bn in tax estimated for stockholdings alone

SEOUL: Shares in Samsung Electronics Co. Ltd. and affiliates rose on Monday after the death a day earlier of Chairman Lee Kun-hee sparked hopes for stake sales, higher dividends and long-awaited restructuring, analysts said.

Investors are betting that the imperatives of maintaining Lee family control and paying inheritance tax — estimated at about 10 trillion won ($8.9 billion) for listed stockholdings alone — will be the catalyst for change, although analysts are divided on what form that change will take.

Shares in Samsung C&T and Samsung Life Insurance closed up 13.5 percent at a two-month high and 3.8 percent, respectively, while shares in Samsung SDS also rose. Samsung Electronics — the jewel in the group’s crown — finished 0.3 percent higher.

Son and heir apparent Jay Y. Lee has a 17.3 percent stake in Samsung C&T, the de facto holding firm, while the late Lee was the top shareholder of Samsung Life with 20.76 percent stake.

“The inheritance tax is outrageous, so family members might have no choice but to sell stakes in some non-core firms” such as Samsung Life, said NH Investment Securities analyst Kim Dong-yang.

“It may be likely for Samsung C&T to consider increasing dividends for the family to cover such a high inheritance tax,” KB Securities analyst Jeong Dong-ik said. Lee, 78, died on Sunday, six years after he was hospitalized due to heart attack in 2014. Since then, Samsung carried out a flurry of stake sales and restructuring to streamline the sprawling conglomerate and cement the junior Lee’s control.

Investors have long anticipated a further shake-up in the event of Lee’s death, hoping for gains from restructuring to strengthen de facto holding company Samsung C&T’s control of Samsung Electronics, such as Samsung C&T buying an affiliate’s stake in the tech giant.

“At this point, it is difficult to expect when Samsung Group will kick off with a restructuring process as Jay Y. Lee is still facing trials, making it difficult for the group’s management to begin organizational changes,” Jeong said.

Lee is in two trials for suspected accounting fraud and stock price manipulation, as well as for his role in a bribery scandal that triggered the impeachment of former South Korean President Park Geun-hye. The second trial resumed hearings on Monday.

Lee did not attend the trial on Monday, as Samsung executives joined other business and political leaders for the second day of funeral services for his father.