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Merrill, UBS Plan Istanbul Offices as Markets Grow (Update2)
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By Ben Holland
Nov. 24 (Bloomberg) -- Merrill Lynch & Co., the largest U.S. retail brokerage, and UBS AG, the world's biggest wealth manager, are opening offices in Turkey to take advantage of its growing stock market and boost fees from company takeovers.
Merrill agreed to buy Tatbank in August to gain a banking license in Turkey and aims to start equity trading by year-end at an office staffed by as many as 40, said Kubilay Cinemre, head of the Turkish unit. Merrill will add a banking team by March and plans to be one of Turkey's top three brokers in a year.
Turkey's benchmark stock index has tripled since 2003. That plus slowing inflation and a move toward European Union membership have lured banks such as Merrill, UBS and Morgan Stanley. There's also money to be made from takeovers: Turkey's government reckons direct investment may double this year from $9.8 billion in 2005.
``There's a big push for everyone to become more efficient and productive, from the individual investor up to the biggest holding company,'' Cinemre said in Istanbul. ``That means there are going to be huge opportunities for a firm like Merrill.''
The ISE-100 Index of Turkey's biggest companies surged 59 percent in 2005, extending rallies of 34 percent and 80 percent the previous two years. Stocks in the index have dropped 5 percent this year amid concern over inflation and global interest rates.
UBS, Citigroup
Turkish brokerages received about $650 million in commissions from stock trading last year, the Turkish brokers association says. Foreign investors, who pay higher commissions, currently account for about 20 percent of trading and that's increasing, said Feyza Sensoy, head of UBS's new office in Istanbul's Kanyon complex.
Sensoy, who spoke in an interview Nov. 20, said the Swiss bank will expand its current staff in Turkey and also start brokerage operations there ``soon.''
The move comes as the number of investment banking deals has surged in Turkey the past two years.
Turkey sold about $16 billion worth of state-owned companies last year as foreign direct investment surged fourfold to a record.
Bank acquisitions were the biggest contributor. UBS advised on the sale of a 20 percent stake in Akbank TAS, the most valuable company on the Istanbul Stock Exchange, by the Sabanci family. Citigroup Inc. agreed to pay $3.1 billion for the shares last month.
General Electric Co. spent $1.8 billion to buy a stake in the Turkish lender Turkiye Garanti Bankasi AS last year. Garanti said today it plans to spend $1 billion to grow outside Turkey.
BNP Paribas, Merrill
More government asset sales are due next year, and investment banks also may earn higher fees from initial public offerings, as companies seek to raise funds to expand.
France's BNP Paribas SA, which bought a Turkish bank last year, is advising the government on an initial offering of shares in Turk Telekomunikasyon AS, the national fixed-line phone company. The government sold 55 percent of Turk Telekom to Saudi Oger Ltd. for $6.6 billion, the biggest acquisition of a Turkish company.
Merrill's Cinemre said he expects about $1.5 billion worth of new shares to be sold in Turkish IPOs next year compared with $920 million so far in 2006.
UBS, Merrill and Morgan Stanley, the No. 2 U.S. securities firm by market value, aren't alone in moving into Turkey. Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, last month appointed Uzay Kozak to open an office in Istanbul.
Morgan Stanley aims to open its Istanbul office in the first quarter of 2007 and to employ as many as 40 people there within a year, said Gulnaz Aricanli, who heads the office.
Morgan Stanley expects the flow of international funds into ``emerging, high-growth economies such as Turkey'' to accelerate as well as a rising number of mergers and acquisitions in areas such as insurance and telecommunications, Aricanli said in an e-mail.
Dubai-based Shuaa Capital PSC, the biggest investment bank in the United Arab Emirates, also is opening a Turkish office.
Turkey's economic growth and deregulation, coupled with the oil riches amassed by its neighbors in the Middle East and central Asia, may turn the country into a regional center for finance, Cinemre said.
``There's new wealth being built around Turkey,'' he said. ``And Istanbul, culturally and geographically, is much better- placed than any European city to serve that part of the world.''