News that the Ottoman Bank merger with Garanti Bank, announced in mid-October, is going ahead on 19 December will reduce competition for sub-custody business in one of the two most closely-watched emerging markets of recent times: Turkey. In fact, the two banks are already united, in the sense that Ottoman Bank is a wholly owned subsidiary of Garanti Bank, which is itself part of the giant Dogus business conglomerate. They will now trade as one.
The merger is being undertaken for reasons far removed from the world of securities services. At a time of economic distress in Turkey, the merged entities will be stronger financially, with $11 billion of assets.This is enough to make Garanti the second largest commercial bank in Turkey and the fifth largest retail operator, so the merger will cut financing as well as operating costs by improving credit standing. The merger will nevertheless cause some concerns among Ottoman clients. Ottoman, which has enjoyed top rankings in the Global Custodian agent bank survey of the Turkish market since 1997, is currently the leading provider of sub-custodian services in Istanbul.
Chief among the concerned will be Turkish sub-custody clients of BNP Paribas Securities Services, which has had a co-operation agreement in place with Ottoman Bank since May 1997. Renewed for a second four year term in May this year, the agreement enables Ottoman to use the BNP Paribas ABS custody system and to take advantage of training programmes at the French bank, so the powers-that-be at rue de la Victoire will be hoping for a seamless transition. A BNP Paribas Securities Services spokesman was unwilling to be drawn on the subject, but confirmed that the bank regarded the Ottoman-Garanti merger as a purely internal matter which would not affect the quality of the custody service. But if Garanti manages to restrict the external impact to a new name (Garanti Bank) and BIC code, it will have done well. Mergers have a nasty habit of spawning unexpected staff changes and client defections.