(Bloomberg) -- Turkey started an investigation into JPMorgan Chase & Co. and another probe of unspecified banks that the regulator reproached for stoking the lira’s biggest plunge since last year’s crash.
The Banking Regulation and Supervision Agency, known as BDDK, on Saturday said a research note a day earlier by two JPMorgan analysts that recommended selling the lira against the dollar had “misguiding and manipulative” content that resulted in volatility in markets and hurt the reputation of Turkish banks. The Capital Markets Board began its own investigation on similar grounds, according to a statement on its website.
“Shooting the messenger?” asked Timothy Ash, a strategist at BlueBay Asset Management in London.
The standoff will keep investors on edge in the days remaining before bellwether municipal elections next Sunday after the Turkish currency led declines among emerging-market peers last week. While Recep Tayyip Erdogan has previously accused foreign powers of waging “economic warfare” against his country, the targeting of JPMorgan risks the worst confrontation with a global bank since allegations earlier this year against the chief executive officer of HSBC Holdings Plc’s local unit for insulting the president, a crime in Turkey.
A spokeswoman for JPMorgan declined to comment.
Erdogan also issued his sharpest warning yet to bankers deemed responsible for driving up demand for hard currency and making misleading predictions on foreign-exchange rates, saying there will be “a heavy price” to pay after the ballot.
“I am calling on those who are engaging in such activities ahead of the elections,” Erdogan said Sunday in televised remarks from an election rally in Istanbul. “We know the identities of all of you. We know what you are doing.”
In its note, JPMorgan said there was a risk the Turkish currency may depreciate after the March 31 vote. It also cited a recent drop in Turkey’s net foreign reserves for its recommendation to sell the lira.
Disclosure of the two probes targeting JPMorgan broke almost simultaneously, suggesting coordination between the authorities. Separately, the banking regulator began another probe against banks that it said manipulated their own clients into buying foreign currencies. It didn’t name the financial institutions in question.
The investigations came a day after Turkey’s central bank tried to stem the lira’s slump by announcing a surprise tightening of monetary policy. At one point on Friday, it was trading more than 6.5 percent weaker against the dollar. The lira ended the day down more than 5 percent, extending its loss for the year to over 8 percent in the world’s worst performance after Argentina’s peso.
The lira’s drop on Friday picked up pace amid speculation the central bank might be using its reserves to support the currency before the elections. Policy makers haven’t conducted a foreign-exchange intervention since January 2014. The bank announces any such operations on the same day they are conducted and publishes the amount 15 business days after the date of the intervention, according to its website.
The central bank’s holdings declined $6.3 billion in the two weeks through March 15, the biggest decrease in the stockpile since January 2014. Still, a central bank official said on Friday that didn’t represent any extraordinary development and mostly reflected repayments of foreign debt and sales of hard currency to state companies that purchase energy imports.
The showdown comes at a sensitive time as Erdogan braces for his first test at the ballot box since assuming vastly expanded executive powers last year. Once outspoken about his distaste for high borrowing costs and railing against an “interest-rate lobby” of speculators, Erdogan has stayed largely silent in recent months, leaving the central bank to focus on rebuilding its credibility.
But the Turkish leader has recently tread less carefully when it comes to antagonizing foreign powers. On Friday, he warned that U.S. President Donald Trump’s support for Israeli sovereignty over the Golan Heights brought the region to the brink of a crisis.
Turkish-American ties remain strained over a number of other disputes, a worry for investors after U.S. sanctions last year for the detention of a U.S. pastor on espionage charges jolted markets. Erdogan is also risking a major new round of tensions with Trump by pledging to go ahead with a purchase of a Russian S-400 missile-defense system whose delivery is expected in July.
--With assistance from Matthew Martin, Selcan Hacaoglu and Cagan Koc.
To contact the reporter on this story: Onur Ant in Istanbul at firstname.lastname@example.org
To contact the editors responsible for this story: Alaa Shahine at email@example.com, ;Onur Ant at firstname.lastname@example.org, Paul Abelsky, Srinivasan Sivabalan
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