Turkey has become such a key growth market for embattled Franco-Belgian bank Dexia that management is unwilling to sell at any distressed price — even to motivated buyers from Russia and elsewhere.
Dexia (thinly traded in New York as DXBGF, quote) has continued to decline in value despite last week’s efforts to save the bank from its exposure to Greece and other troubled euro borrowers by dumping the “bad” assets.
Over the last week, Dexia shares plunged as much as 46%, bringing their total losses since peaking in February to a harrowing 85%.
Last night, Belgium agreed to buy part of the operation for $5.6 billion — roughly what the whole company was worth in July — and gave the stock a bit of a lift.
But while the rating agencies have been quick to downgrade the bank and are now threatening another cut for Belgium itself, management is hanging on to its Turkish affiliate, DenizBank.
Separately traded in Istanbul, DenizBank is now worth $4.4 billion on the open market, almost exactly twice the parent company’s current market capitalization.
It is also not for sale, management insists.
DenizBank is one of the few growth units Dexia has — a “crown jewel” in its otherwise mature empire — and the potential for further expansion is significant.
The bank still only has 2.7% of Turkish deposits and writes 4.4% of the country’s loans.
By comparison, local rival Garanti (TKCBY, quote) has 12% of the assets and does 13.4% of its lending.
But if Dexia has to sell, it also makes DenizBank a tempting target for foreign competitors looking for a toehold in Turkey.
Russia’s Sberbank (SBRCY, quote) has been touted as a likely bidder, but management has dismissed the rumor.
Still, unlike Dexia’s primary rivals in the euro zone, Russian banks are among the few in the region with both the cash to make a multi-billion-dollar purchase and the balance sheet to absorb any exposure to bad loans.
On the other hand, Turkish regulators have actively encouraged consolidation in the fragmented banking space, so it is also a possibility that a local name like Garanti will step up to the plate here.
Either way, the Turkish banking sector is in motion.
And back in Belgium, Dexia’s decline has yet to trigger the massive losses for country-specific funds like EWK (quote) that Italian and French funds have suffered in recent months.
Dexia does not even account for 1% of EWK’s holdings. By comparison, Garanti is a giant constituent of the Turkey fund (TUR, quote), weighted at 14.4% of the overall portfolio: