Emerging Europe: Unlu & Co recasts Turkish private banking

With his 50th birthday rapidly approaching, Mahmut Unlu could be forgiven for looking to take things a little more easily. Unlu & Co, the firm he founded in 1996, has long since established itself as Turkey’s leading independent investment bank, while forays into areas such as private equity, non-performing loan management and venture capital have proved equally successful.

Yet Unlu has no intention of resting on his laurels. Last month saw the official launch of Unlu & Co’s first retail brand – appropriately named Daha, ‘More’ in English – with which the firm’s owner hopes to revolutionize the Turkish private banking industry. 

“There is a whole new market to be created here,” says Unlu. “There is a huge gap at the moment between what international banks can offer and what Turkish banks can offer. If you can provide a wide array of products and a good investment advisory service, there are billions of dollars in assets under management to be gained.”

At present, the wealth management industry in Turkey is dominated by the private banking arms of the country’s big retail lenders. A few high net-worth individuals (HNWIs) are serviced by the big Swiss players, but the scope of their activities is limited by the lack of a local presence.  

Unlu says Turkish market leaders such as Akbank, Garanti, Is Bank, Yapi Kredi and TEB are equally constrained in the service they can offer to private banking customers, in this case by their core business model. 

“Retail banking is all about raising deposits,” he says. “Any product they sell will therefore have to have a deposit element.” 

By contrast, he says, an independent player such as Unlu & Co that is not using its own balance sheet can be agnostic. 

“We can offer customers any bank’s deposit and we can bundle it with something else to create, for example, a product that will provide exposure to gold.” 

So confident is Unlu in the potential for growth in the private banking market that he expects Daha to be producing 20% of total group income by the end of the decade and to have taken a 4% share of the Turkish market. That may sound ambitious but, as he points out, South Korea saw just such a transformation in the sector following the 1998 Asian debt crisis. 

“At that time, four retail banks controlled around 90% of the Korean fund management market – exactly the same as in Turkey right now,” he says. “Then interest rates came down, inflation fell and investors started looking for better-quality service and more value-added returns than the banks could provide. Today, retail banks own less than 20% of the asset management industry in Korea.”

Are affluent Turks, accustomed to the relatively simple savings products provided by the retail banks, ready to make the move to a more sophisticated private banking service? Unlu says the key to success will be to begin with familiar formats. 

“Around 95% of Turkish savings are in fixed income products, so anything we start with needs to have a fixed income element to it,” says Unlu. “Another asset class that Turkish investors like and understand is real estate – so we can start with real estate-related products and then slowly provide clients with exposure to the upside of equities, commodities etc.”

He admits that the process will have to be gradual. 

“We are not blind,” he says. “We are not saying we can go to investors today and convince them to put all their money in equities. We will slowly teach them that if they want to earn sustainable returns above Turkish inflation, they can’t just do that by putting money on deposit.”

In Turkey’s extremely tech-savvy banking market, a sophisticated digital offering is essential for any aspiring retail player, and Unlu & Co has duly launched a state-of-the-art mobile trading platform called UTrade. A dedicated YouTube channel for investors called The Club is also in the works.

Daha will not be entirely dependent on digital, however. “Individual contact obviously remains very important as far as private banking is concerned, so we’re working on putting together a very experienced team from both within and outside the company,” says Unlu.

Unlu & Co has already hired more than 30 employees for its new venture. It has also opened its first office in Turkey outside Istanbul, in Ankara, and is planning to add further bases across the country to serve regional clients.

The firm is targeting only the top tiers of Turkish private banking customers – HNWIs, C-suite employees and business owners – but Unlu says the scope could be widened: “If we are successful, then we’ll move down the ladder.” 

This strategy has the advantage of allowing Unlu & Co to leverage its very strong corporate brand and client base, he adds. 

“If we went straight to the retail market, then obviously a lot of people wouldn’t know us,” he says. “But the corporate world knows us, and the people that we want to reach at this stage are related to that world in one way or another.”

This brand awareness is the result of 21 years of nearly constant expansion and evolution. From relatively humble beginnings as an M&A boutique advising European companies on investments in Turkey, Unlu & Co rapidly transformed itself into a full-service investment bank.

In 2002, the firm took its first step in corporate finance with the acquisition of a small Turkish brokerage house. The establishment of a fixed income unit and an institutional sales desk followed swiftly, as well as a partnership with Lehman Brothers. By 2005, Dundas Unlu & Co – as it was known at the time – had become one of the leading brokers for international clients investing in Turkey. 

The years before the global financial crisis saw the firm add a private equity fund and a non-performing loan management operation to its growing business portfolio, as well as the acquisition of a majority stake by Standard Bank. 

The South African lender sold out again in 2012 as part of a broader divestment of non-core assets, but not before Standard Unlu had moved into venture capital with the launch of 212 Capital Partners, a tech-focused start-up fund. The bank’s shares were bought by Unlu himself, who now owns 80% of the company.   

Under his sole leadership, Unlu & Co has continued to break new ground. In the past five years the group has launched a hedge fund and a long-term investment fund, the latter in partnership with the Wellcome Trust. The UK foundation now also holds a 9.9% stake in the company after providing a $17.7 million capital injection last year. 

The reason for the capital raise was to provide funding for an ambitious programme of overseas expansion. Unlu & Co has already opened offices in the US and Singapore to service its international clientele, but its founder has also set his sights on becoming the largest investment bank in the Middle East and north Africa. 

MENA Finans, a dedicated firm serving investors in the region, was set up in 2012. Unlu is also looking to develop a presence on the ground in key markets, starting with Iran, Egypt and Saudi Arabia. In September, he announced that Unlu & Co was on the verge of becoming the first Turkish bank to operate in Iran since the start of the US sanctions regime, via the purchase of a local brokerage firm.

That has been put on hold following the US election, because of uncertainty over the new administration’s policy on Iran. An Unlu & Co spokesperson insists, however, that Iranian expansion “is still in our vision”. 

Back in its home market, the firm has also faced the challenge of economic slowdown over the past year, exacerbated by July’s failed coup attempt and the collapse of the Turkish lira. In the third quarter of 2016, Turkey’s GDP contracted – by 1.8% – for the first time since 2009. 

Despite this negative backdrop, Unlu & Co managed to post positive revenue growth last year, thanks largely to its broad product mix. As Unlu notes, while equity capital markets activity has all but dried up since the coup attempt, in-bound M&A, in which his firm remains the local market leader, has remained surprisingly buoyant. 

“Turkish markets have become more volatile, which has affected capital markets activity, but long-term money continues to flow into the country,” he says. “From a strategic investor perspective, Turkey’s demographics and strong fundamentals still make it extremely attractive, so they see this as a buying opportunity.”

Similarly, a hiatus in the development of the nascent domestic corporate bond market in Turkey, caused by the sector’s first large default in February last year, has been compensated for at Unlu & Co by a pick-up in purchases by its NPL management arm following a deterioration in asset quality in the banking sector. 

A recent venture by the firm into debt advisory is also proving increasingly popular with Turkish corporates looking to raise long-term funding for project finance and acquisitions. 

“We are working on a number of significant mandates which we hope to close within the next couple of months, including a $1 billion financing,” says Unlu.

Meanwhile, on the investment banking side, his firm is benefiting from decreased competition as a result of a partial pullback from Turkey by global players. 

“The big banks are all still here, but in the past couple of years they have cut staff and become less active,” says Unlu. “As a result, our market share has gone up.”

Whether or not Unlu & Co will be able to replicate its achievements on the corporate side in the cut-throat world of Turkish retail banking remains to be seen. On past form, however, it would be rash to bet against it.