Banking Investigation: Grand Finalé

the-endOn Friday the March 8th the TCA has announced its long waited final decision on banking investigation: guilty as charged! Decision has set new all time high fining records due to the size of the sector and the undertakings (check out Harun’s post for details). Investigation on 12 banks (including 3 state-owned banks) had started in November 2011 and banks were alleged to had agreed to jointly set maximum deposit rates and credit card fees and charges as well as to increase loan rates between 2007 and 2011.

Being the Authority employees we have abstained from making comments on the ongoing investigation process as you know. Before seeing the reasoned decision we still have a little to say on the investigation but there are a few things to mention about.

First of all banking sector executives kept tacitly implying during the process that the “sector” must be exempted from the competition rules due to the “special circumstances” of the sector. Accordingly one of the first impacts of the decision was a press release by the Banks Association of Turkey (BAT) which says as follows:

 “…In addition, in order to avoid such a situation which is far from reflecting the realities of the industry and, therefore, is fundamentally unjust, the relevant legislation needs to be reviewed to take into account sector characteristics. For this purpose, under the supervision of the relevant institutions and organizations, it has been put on the agenda of the BAT to work on the legislative amendment proposals.”

According to the statement of the BAT, so the banks, are going to use their powers to create a competition law exemption for the sector. But why? I believe that the TCA’s investigation was built upon tangible evidence and the decision is just antitrust wise. I suppose such a statement can be interpreted as the Turkish Banking Sector’s standard operating procedure has been collusion and instead of complying with the law they want to amend it (a good example of how collusion worked back in 90’s, can be found here in Turkish).  Moreover reading bank executives statements following the decision, it is attracted my attention that they are confused about some basic competition law concepts such as object, effect and information exchange, even after having two different investigations within three years. Here is the statement of the Garanti Bank CEO for instance:

“..It is said that a number of conversations and e-mails have been identified. People who know each other, talk to each other in all sectors. This does not mean that a violation of the competition. It must be examined if we did give any instruction to branches thataway. Do we have a common interest rate applied through the all branches of the banks? No, not. So how competition are being violated?”

Another issue that caught my attention during the investigation was the wording of some lawyers during the oral hearings. I have observed watching the hearings that some attorneys chose to speak ill of the rapporteurs and the investigation report itself instead of pointing out to the weak points of the report sedately and picking a hole in it. It’s not a much wise strategy in so many ways.

Last thing I’d touch upon is the private litigation process which probably will follow the decision. Articles 56, 57 and 58 of Turkish Competition Act allows competitors and consumers to claim damages they suffer as a result of the infringement of competition, that is to say the difference between the cost they paid and the cost they would have paid if competition had not been limited. During the investigation some NGOs had announced that they would appeal to the court for compensation against the banks once the violation is detected by the TCA. Since the private litigation way has never been implemented successfully within the Turkish Jurisdiction so far and the wording of the Act is disputable, those litigation cases will illuminate the road. I personally wonder how the Judges approach this case. The biggest challenge that they may face is the calculation of the damages while another important issue is the determination of grounds for triple damages. The Act states that if the resulting damage arises from an agreement or decision of the parties, or from cases involving gross negligence of them, the judge may, upon the request of the injured, award compensation by three-fold of the material damage incurred or of the profits gained or likely to be gained by those who caused the damage.

All in all the fat lady has sung her song and the decision has taken its place as a remarkable one within the Turkish Competition Law cases and we may expect to hear more of its impacts sooner.

Article: Turkish Competition Law and Policy

If you are not much familiar with the Turkish Competition Law Regime I recommend you to check out this article titled “Competition Law and Policy in Turkey – Recent Developments and Prospects” by Yusuf Kaan Gürer (this is the part one out of three). It gives very felicitous information on jurisdiction and points out some prominent cases.

Sea Fight in Marmara…

Nowadays, we watch a very interesting sea-fight, which is not less interesting than the Battle of Trafalgar. Well… this one is in Marmara Sea and 2012…

On the north side there is TASS (Tepe-Akfen-Souter-Sera Joint Venture Group) which paid USD 862 million in June 2011 to buy through privatization process Istanbul Deniz Otobüsleri Sanayi ve Tic. A.Ş. (IDO). IDO, which is private since June 2011, is a ferry company founded in 1987 by the Istanbul Municipality to promote sea transport. (For a short history of IDO please click)

On the south side, we see Bursa Municipality and Negmar.

Well, it all started just after the privatization of IDO, which is the operator of many ferries in Marmara Sea. One, and the most profitable, line of IDO operates is Eskihisar-Topçular line. IDO is  (or may will be ”was”) the only one ferry company on Eskihisar-Topçular line. After the privatization, TASS decided to change the fixed prices and started new price policy, called as ”flexible” for passengers and cars. Like in the airlines, for example, TASS sold higher-priced last minute tickets and priced the seat preference option for the passengers. Moreover, TASS also raised the general prices. For example price for a car with one passenger to be carried through the Yenikapı-Bandırma line raised from TL 125 to TL 228. Transport price for a three-people family with car costed TL 412, while it had costed about TL 175 before.

People, who started to pay much more for the same tickets, raised their voices and made complaints about.  Turhan Tayan, a member of Turkish Parliament, submitted not only a parliamentary question to the Minister of Sea, transportation and Communication but also a bill of complaint to the Turkish Competition Authority, saying that TASS has breached the Article 6, of the Law 4054 (The Act on the Protection of Competition), abusing its dominance.

In the following days TASS stepped back and changed its price policy for IDO and decreased the prices for passengers and cars. TASS claimed that people could not understand the policy and pointed that this was a transition period and the passengers could not adopt to the new structure.

However, it seems that this  “pandemonium” attracted new rivals: Bursa Municipality and Negmar.

Bursa Municipality decided to start to operate a ferry line, called BUDO, between Bursa (Mudanya) and İstanbul (Kabataş) ports.

Negmar (Negmar Sea Transportation Company) is a partnership of Gübretaş, Nesma Yatırım Holding and İstanbul Lines. Negmar, like Bursa Municipality, announced to commence sea transfer on October 25, through the (Gebze) Eskihisar- Yalova (Topçular) line, which is one of the most profitable lines in the area since it prevents thousands of people  to drive through Gulf of İzmit especially during holiday seasons. It is estimated that through Eskihisar-Topçular line 4 million cars, which create TL 200 million ( about USD 112 million) turnover, are carried in a year.. About the subject, Negmar Chairman Abdullah Kutlu talked to daily Hürriyet and said  “We noticed that passengers were looking for new ventures, and decided to make this investment. We will transport passengers between Eskihisar and Topçular in five ships. We have currently bought three and will purchase two more.

The mayor of Bursa Municipality, which had signed a deal in August with a Norwegian firm to buy its first ferry, pointed the issue and told Hürriyet At first they thought we were bluffing, but we immediately jumped into action. Now we have bought two ships. … We are also about to sign an agreement for another two ships, [which may be] rented or purchased.

The main actor TASS is mad about this ongoing process. Hamdi Akın, chief executive of Akfen (a partner of TASS), talking to the business magazine The Lira, laid stress on the privatization process and the amount they paid and said that since they had paid USD 862 million to the İstanbul municipality to win the tender, the [new rival] companies should pay some amount as well. According to him, the ports that those companies will use could not be given just free. He also included that if the new rivals would come to the play, there should be an auction for them too. He concluded that otherwise they would file a suit.

Today, Brian Souter, a partner of TASS, told Financial Times that if a rival company starts to operate as a competitor in one of the lines purchased by TASS, TASS will re-evaluate its city-lines between the two sides of the Bosphorus, which is very vital for İstanbul’s daily life. In the FT article, there is an interesting point. According to FT Souter Investments said that it was “led to believe” by documentation provided by Istanbul municipality that “the route would be exclusive for a period of time”.

Well folks, in the following days we expect a harsh sea-fight in the the Marmara Sea, including international companies, municipalities, passengers and government organizations. We will see whether there will be one “Padisah” in the line or whether the “Janissaries” will overthrow him.

Sources: Hürriyet, HurriyetThe Lira, bursadabugun.com, Financial Times