Demirbank

» see demirbank.com.tr as it lived, on the wayback machine

~ the goodbye ~

Demir means iron. In 1953 seventy-nine shareholders, most of them merchants who traded in it, put up roughly $714,000 of capital in Istanbul under Nuri Cıngıllıoğlu and named the bank after their own line of work. It stayed a mid-sized commercial bank for three decades. Halit Cıngıllıoğlu took it over in 1988, and by 2000 it had 198 branches and was the fifth largest private bank in the country, with a slogan on its letterhead that wished you a good day.

I was sixteen in November 2000 and had been online for two years on a dial-up line, which puts me a long way from the interbank market. The crisis arrived at the house anyway, because that is what a Turkish banking crisis does. The overnight rate got read out on the evening news the way a weather number is read out. Over the following year the phrase el konuldu started attaching itself to bank names one after another, and Demirbank was the first of that run.

The seizure took one decision. On 6 December 2000 the BDDK, the banking regulator that had only started operating that August, transferred Demirbank's management and its shares to the Savings Deposit Insurance Fund, on the finding that its assets could not cover its obligations and that letting it keep trading would threaten the stability of the system. The Fund ran it through most of 2001 and sold it to HSBC for $350 million. The name came off the branches on 14 December 2001, when what was left was merged into HSBC Bank A.Ş.

~ the chronicle ~

~ the trade that worked until it did not ~

After the 1994 crisis the Turkish state borrowed at rates that made its own paper the best asset in the country. Demirbank did the obvious thing and did more of it than anybody else. It bought government domestic debt securities, the DİBS, and funded the portfolio with overnight money from the interbank market and from repo. The spread between what it paid overnight and what the Treasury paid it was the whole business, and in a country running the deficits Turkey was running, that spread did not read as a risk.

It was a maturity mismatch, which is the oldest way there is for a bank to die. The bonds had years left on them and the funding had to be renewed every morning. That works for exactly as long as somebody is willing to lend you the money each morning.

In November 2000 nobody was. Roughly $4.8 billion of foreign money left the country inside a few weeks and the interbank market stopped clearing. On 22 November the average overnight rate hit 110.8 percent and went above 200 percent from there. Demirbank could not roll its funding, so it began selling bonds into a market with no buyers, which pushed prices down far enough to give every foreign holder of Turkish paper a reason to sell as well. A bank sitting on a large stock of the safest asset in the country could not borrow against it from any of its neighbors.

~ what the courts said later ~

The legal afterlife is the part that has not finished. Sema Cıngıllıoğlu went to the Ankara Administrative Court on 20 September 2001, the same day the sale agreement was signed at the bank's Zincirlikuyu head office, asking for the sale to be annulled. On 21 April 2004 that court annulled it, because the Danıştay had already found the transfer to the Fund unlawful. The European Court of Human Rights reached the same place in Cıngıllı Holding A.Ş. and Cıngıllıoğlu v. Turkey. Its reasoning was that where a state's own courts have found its actions unlawful, the actions are unlawful under the Convention too, and it found a violation of the right to property. The compensation was so hard to calculate that the court split it into a separate judgment and did not deliver it until 2020. None of that gave anybody a bank back.

~ the name in bishkek ~

HSBC bought 198 branches and a customer list. It did not buy the foreign subsidiaries, which stayed with their owner, the Romanian and Bulgarian banks among them. The signing on 20 September 2001 was done by the BDDK chairman Engin Akçakoca and HSBC's group chief executive Keith Whitson, and the transfer completed at the end of October. Contemporary Turkish reporting put Demirbank's market value nearer $1.2 billion than the $350 million the Fund got for it.

The name did not stop trading. Demir Kyrgyz International Bank opened in Bishkek on 28 May 1997, three and a half years before the BDDK took the Istanbul bank. It does business as DemirBank. Halit Cıngıllıoğlu holds 92.5 percent of it directly and the rest through a Dutch holding company he also owns. So the word is still over a door, in a country where the Danıştay has no reach. The bank that seventy-nine iron merchants started in 1953 stopped existing on 14 December 2001.

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