BBVA-Garanti, the weight and risk of a country brand

It seems that the trading floor (as it used to be called in the stock market) does not understand the Turkish strategy of BBVA until now: the takeover bid for the Turkish bank Garanti to exceed 50% participation (up to 100% if possible) and become in the total manager of the entity has not gone down well with investors. The BBVA-G (to continue adding acronyms) has stumbled on the stock market.

The reasons for this mistrust are complex. They have more to do with the situation of the country where it operates, than with the operation and expectations of the bank itself. Western investors are wary of a culture they don’t understand.

Turkey was for almost six centuries a world power, a benchmark in the Mediterranean. Arnold Toymbee he described its rise and fall as an empire with its own characteristics. Their Anatolian origin taught them, according to the historian, to govern large tracts of land using the original Janissary system. A soldier who, extracted from his own territories as a child, ended up being loyal to the sultan after a long period of Ottoman acculturation.

The current Turkey in its territory comes from the dismemberment of that empire after the First World War. Kemal Ataturk he wanted to transform a sultanate/caliphate into a secular state. But, under the layer of modernity that the reformer wanted to give it, there remained the Islamic/Middle Eastern substratum that has resurfaced with Erdogan.

An Erdogan who has become more and more an elected ‘sultan’, shedding the Western layer that the secular ‘Young Turks’ wanted to imprint on their State. Today, to understand the Turkish economy, you have to think more of an Istanbul bazaar than of the Wall Street stock market. His business has more to do with friendship and trust as a guarantee of compliance than with Western-style contracts.

Therefore, it is difficult to understand Turkey and its culture. It is not Western/European, or at least not as much as it appeared to be until Erdogan. And human beings distrust what they do not understand. Hence the difficulties of understanding the investment in Garanti that the former president of BBVA, Francis Gonzalezpromoted and that is now completed with the takeover bid.

A takeover bid with a 15% purchase premium above market value and still cheap. Cheap because the Turkish economy is not going through its best moment with its currency, the lira, devalued internationally. It would be said that it is a good business in the short term, unless in the medium and long term the progress of that economy is distrusted.

But, in addition, it is possible that investors are also wary of a coincidence: the CEO of BBVA is Onur Genç. By his name you can see that he is not Spanish, he is Turkish. A brilliant executive who has worked in the upper echelons of Garanti, at BBVA in the US and who, according to all the news, is partly the architect of the good performance of the bank. In the second quarter of this year, he earned twice as much as in the first and increased his customer base. In addition, it has announced a generous dividend.

That’s why, that coincidence rather than discouraging should encourage. If anyone within BBVA knows its Turkish subsidiary well and its possibilities, it is its CEO. He knows her inside. He has direct experience of how the country’s economy works and can talk to Erdogan in his own language.

The other coincidence is the visit of the Spanish president, Pedro Sanchez, into Turkish, just as the takeover bid is taking place. Chance?

So there is a lesson to learn. The weight of the country brand, in this case that of Turkey, matters to investors. Its stability and economic potential, of course, but also, to a great extent, its political image. Turkey, to an outside observer, is increasingly Middle Eastern and less Western. That creates restlessness and money, you know, is scary.

That’s why, Building a good country brand is important. Foreign investment creates jobs and Spain is what it needs. Do we have the brand that suits us in economics and politics?

***JR Pin He is a professor at IESE.

María Dolores Dancausa, CEO of Bankinter, in a presentation of results for 2021.


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