April 5, 2018 / 2:44 PM / 6 months ago

RPT-UPDATE 2-Halkbank shares surge after U.S. seeks jail term for banker

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ANKARA, April 5 (Reuters) - Shares in Turkey’s majority state-owned Halkbank rose as much as 18 percent on Thursday after U.S. prosecutors sought a 20 year jail term for a Halkbank executive convicted of helping Iran evade U.S. sanctions.

President Tayyip Erdogan’s spokesman condemned the prosecutors’ demands as a grave injustice but investors appeared to take the move in a positive light, seeing a chance that U.S. Treasury action against Halkbank may be less severe than anticipated, analysts said.

“A perception might have been formed that a deal might have been struck between the parties that this case will be limited to individuals...or a perception that a lower-than-expected fine might be imposed on the bank,” said Enver Erkan, a researcher at GCM Securities.

Halkbank declined to comment. Shares in the bank were up as much as 18 percent in the morning trade and stood at 10.04 lira per share at 1231 GMT, up 11 percent on Wednesday’s close.

U.S. prosecutors on Wednesday asked a federal judge to sentence Mehmet Hakan Atilla to about 20 years in prison in a sanctions-busting case that has strained diplomatic ties between Turkey and the United States.

Atilla was found guilty by a federal jury in Manhattan in January and is due to be sentenced on April 11. Halkbank has denied any wrongdoing, but the case has weighed on its shares - they are down about a third from last year’s peak.

‘LESS SEVERE’

“The market might be pricing in the expectation that the bank will be getting a less severe fine,” said Sadrettin Bagci, a banks analyst at Deniz Investment, adding investors were likely pricing a $1 billion fine - the equivalent of one year’s worth of earnings at the lender.

The Haberturk newspaper said in October that Turkish banks might face billions of dollar in fines due to violations of U.S. sanctions on Iran. The government has said it will take any necessary measures to protect banks.

The U.S. case against Atilla was based on the testimony of gold trader Reza Zarrab, who cooperated with the U.S. prosecutors and pleaded guilty to charges of leading a scheme to evade U.S. sanctions against Iran.

In his testimony Zarrab implicated top Turkish politicians, including Erdogan. Zarrab said Erdogan, who has governed Turkey for nearly 15 years, personally authorised two Turkish banks to join the scheme when he was prime minister.

Halkbank, the fifth-largest Turkish bank by assets, said all its transactions were in line with the local and international regulations. Ankara has said the U.S. judiciary relied on fabricated evidence and has cast the case as a plot to undermine Turkey.

Erdogan’s spokesman said Turkey strongly condemned the demand from U.S. prosecutors, calling it a “legal scandal”. (Reporting by Ece Toksabay, Tuvan Gumrukcu and Ebru Tuncay; Writing by Daren Butler Editing by Dominic Evans and Alexandra Hudson)

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