TURKEY - Feb. 5 - Pamukbank Put Up For Sale.

The government puts up for sale Pamukbank, the 7th largest bank, 3 days after resolving a dispute with its former owner that threatened the $16 bn funding agreement with the IMF. The deal ending the dispute has also been criticised by the IMF for being too soft on Mehmet Emin Karamehmet, the bank's former owner. But some financial analysts argue that the deal is probably the best of a bad job. The deal with the Banking Regulation and Supervision Agency (BRSA) gave Karamehmet 15 years to repay $6.2 bn owed to Pamukbank, which was confiscated from him eight months ago, and to Yapi Kredi, Pamukbank's bigger sister bank which becomes solvent with the accord rescheduling group loans. At the root of the two banks' financial difficulties lies unprofitable lending to other companies in Karamehmet's Cukurova group. After withdrawing a legal challenge to the Pamukbank seizure, Karamehmet, who must within two years sell Yapi Kredi after being deemed "unfit to own a bank", has also pledged most of his controlling stake in Turkcell, the country's leading mobile operator, as collateral for the bank loans. He is understood to be planning to sell his stake in Turkcell and to use cash flow from the mobile operator until then to help meet his obligations. Analysts have questioned Karamehmet's ability to honour a payment schedule, which rises sharply in three years time when principal becomes due. Although the World Bank described the accord as "a fair deal for both sides", the IMF, which has underwritten Ankara's $40 bn bank restructuring drive, has attacked the accord for being too soft on a failed bank owner. But most analysts also agreed with Engin Akcakoca, the BRSA chairman, when he said that the deal represented the "least-cost solution for the time being". The alternative would have been for the BRSA to take over Yapi Kredi in its most expensive bailout yet. "This is the best of several bad outcomes", said Murat Koprulu, chief executive of Multilateral Funding International, a New York-based emerging markets investment house. "Taking over Yapi Kredi would have bankrupted the Turkish treasury". Akcakoca said in an interview: "With this accord, I'm not losing my power to be tough on Karamehmet in future should he fail in his commitments". He was referring to the BRSA's ability to seize Yapi should it fall below a 10% capital adequacy ratio. The BRSA will also replace the bank's board and management team. Akcakoca noted that the dispute with Karamehmet had been complicated by a legal system which was not equipped to deal with urgent business cases. He said: "Time should not result in value loss". He was referring to how the country's highest court for such disputes had directed the BRSA to return Pamukbank to Karamehmet eight months after declaring it to be insolvent. He also appealed to politicians to stop damaging attacks on the quasi-independent BRSA, which since its inception two years ago has greatly improved banking supervision. Mehmet Simsek, economist at Merrill Lynch, urged politicians who were concerned about the injustice of bailing out failed bank owners to eliminate the universal deposit insurance system which encouraged irresponsible banking practices in the first place.