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Cablegate: Terror Attack's Impact On Financial Markets

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ANKARA 007273

SIPDIS


SENSITIVE


STATE FOR E, EB, EB/IFD, AND EUR/SE
TREASURY FOR JLEICHTER AND MMILLS
NSC FOR MBRYZA AND TMCKIBBEN


E.O. 12958: N/A
TAGS: EFIN ECON PTER TU
SUBJECT: TERROR ATTACK'S IMPACT ON FINANCIAL MARKETS


REF: ISTANBUL 1744


1. (Sbu) Summary: Though it is still early to judge, Turkish
financial markets showed initial resilience in dealing with
today's Istanbul terror attacks. The stock market fell
sharply before it stopped trading. The foreign exchange,
government security and interbank markets continued to
function, however, and fell only modestly, albeit with low
volume. The Central Bank succeeded in calming markets with
an early statement that it was adding liquidity, cutting
overnight borrowing rates, and that it would stay open late,
if needed. Though it is not yet known whether the Stock
Exchange will open tomorrow, even bombed HSBC will reportedly
open. End Summary.


2. (U) Following Saturday's synagogue bombings, Turkish
financial markets reacted calmly on Monday, with less of a
sell-off than in international markets. Today's bombings,
however, raising fears of a campaign against Turkey, and
targeting a major foreign-owned Turkish bank, HSBC, initially
sent the stock market down sharply. The IMKB 100 index fell
7.37 percent to 14,617 in the first half hour after the news
broke. The exchange then decided to close for the day to
calm the market.


3. (Sbu) The Central Bank acted quickly, issuing a statement
by mid-day. The Bank said it would add liquidity, cut
overnight bank lending rates from 31 to 28 percent, and stay
open late, if needed, to allow banks to complete
transactions. The bank also warned market operators against
speculating in the foreign exchange market. The Bank's
statement seems to have been highly effective: the government
securities, foreign exchange, and interbank markets continued
to function. albeit with low volume, and ended the day down,
but only modestly. The interest rate on the benchmark bond,
for example, only rose from 28.69 percent at yesterday's
close to 29.07 percent and the lira only fell from 1.458
million per USD in the interbank market to 1.484 million at
the close. Comment: with the low trading volumes today,
these numbers should be treated with caution--they may not
indicate the levels that the markets will settle at once they
resume normal trading. End Comment. Central Bank Governor
Serdengecti told Econcouns that because of the HSBC bomb's
proximity to many banks, trading virtually stopped in the
first hour or two after the bombs. By the time trading
resumed, according to Serdengecti, traders slightly calmer
mindset--helped by the Central Bank's announcement--may have
helped avoid a sharp fall.


4. (Sbu) Similarly, Turkish Treasury Public Finance Director
General Tulay Saylan told Econ Specialist that the t-bill
market traders were relatively calm though transaction volume
almost stopped. She said foreign investors reacted more,
selling Turkish securities, but by later in the day even
foreigners were trading in a more normal fashion.


5. (Sbu) A Citibank executive told Econoff that, though they
had adopted additional security precautions, they could not
close unilaterally and needed to continue to honor and
complete transactions. He noted that the HSBC building that
was bombed was not the locale of HSBC's operations center,
such that HSBC had continued to operate. According to the
Citibanker, a HSBC executive told him the bank would,
heroically, be open on Friday. In a similar vein, Kubilay
Cinemre, a senior executive at Garanti Bank, also told
econoff the markets had held up relatively well, with even
the Eurobond market trading about where it was last week.
Cinemre, admitted, of course, the events would add to
Turkey's risk premium.


6. (Sbu) On the other hand, though it is very early for
analysis of the impact on Turkey's economy, one Istanbul
analyst has already posited that the attacks could reinforce
U.S. and international support for Turkey, adding to
investors' tendency to view Turkey as a "moral hazard play,"
meaning investors can rely on continued U.S. (and therefore
IMF) geostrategic support. Though the attacks can be
expected to harm the tourism sector, one Istanbul analyst
pointed out to econ specialist that the timing--at the
beginning of the slow winter season--might lessen the damage,
provided there are no more attacks before the spring season.


7. (Sbu) At 5:00 PM local time, Econ Specialist spoke to a
stock exchange official who said they still had not decided
whether to open Friday. The exchange faces a quandary: if
they stay closed tomorrow the market will remain closed
throughout next week's Bayram holiday, only reopening,
November 29. If they reopen tomorrow, however, they could
face a continuation of today's sharp sell-off. Bankers with
whom econoff spoke were divided on which approach made more
sense: some arguing for the extended cooling-off period while
others advocated reopening to demonstrate the soundness of
the market.


EDELMAN

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