Turkey’s Fine for Contempt of U.S. Court Could Soon Reach $1 Billion 

(Bloomberg) -- If U.S. prosecutors get their way, Turkey’s Halkbank could be liable to pay $1 billion of dollars in fines as early as March if it continues to refuse to appear in a court case in New York.

A few more weeks of non-compliance by the state-owned lender, and it would be on the hook for the equivalent of the central bank’s net reserves. By mid-May it would be an entire year’s worth of Turkey’s economic output.

Yet none of this will ever come to pass, as far as investors are concerned.

“The market doesn’t believe at all that this is going ahead. If it did, the lira would have performed very differently,” said Cristian Maggio, the head of emerging-market research at TD Securities in London. “Or perhaps the market assumes that Halkbank complies straight away?”

The U.S. government on Tuesday asked a federal judge to impose a daily $1 million fine that would double each week that Halkbank refuses to show up in court, where it’s being charged for helping to evade U.S sanctions on Iran.

Since then, the lira has barely budged, bond yields have pushed to new lows and the stock index has held close to a record. Even Halkbank shares powered through, touching a 10-month high on Wednesday.

“Quite frankly, a fine that grows that large is disproportionate in every possible sense,” Maggio said. “Not even post-WWI Germany was imposed such high reparation costs.”

Here’s a chart showing the projected size of the fine, should it be imposed and Halkbank refuses to comply, according to Bloomberg’s calculations.

And here are few milestones along the way:

• April 3, $10 billion, more than the government’s external borrowing target for the year
• April 17, $41 billion, more than Turkey’s net international reserves
• April 24, $82 billion, more than the central bank’s gross reserves
• April 27, $98 billion, more than the central government’s external debt stock
• May 1, $164 billion, equivalent to Turkey’s total external debt stock - public and private - maturing over the next 12 months
• May 5, $229 billion, more than Borsa Istanbul’s market capitalization
• May 18, $786 billion, more than Turkey’s gross domestic product

To contact the reporter on this story: Constantine Courcoulas in Athens at ccourcoulas1@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, ;Alex Nicholson at anicholson6@bloomberg.net, Robert Brand, Marton Eder

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