Turkey launched an investigation against JP Morgan following volatility in Turkish markets. The probe stemmed from claims of misguided analyst's advice to short the Turkish lira that plunged to over four percent and its share index fell hard during the weekend.
As per Reuters, Turkey's banking watchdogs - the Banking Regulation and Supervision Agency (BDDK) and the Capital Markets Board of Turkey (SPK), open a separate probe into JP Morgan and other banks. It was said that the drop in lira is the worst since Turkey's currency crisis last year.
Due to the suspicions, Recep Tayyip Erdogan, president of Turkey issued a warning that for investors saying that they are bound to pay a heavy price for currency speculation after the bank regulators announced they will investigate JP Morgan for allegedly giving misleading advice for their clients to short the lira.
This means that investors were said to have been advised to borrow shares and sell them immediately so they can get them later at lower prices and then give it back to the lender and then pocket the difference. Over the weekend, Turkey's BDDK began looking into this allegation against JP Morgan after two of the association's analysts released a report about the Turkish lira suffering from its worst day against the dollar, Bloomberg reported.
A short while later, the Capital Markets Board also followed suit and launch its own investigation on the matter. With the ongoing probe on the American investment company, President Erdogan believed that there are people provoking Turkey as the dollar began going up against the nation's currency.
In a message directed to the finance division, the Turkish president warned them by saying, "If you get involved in provocative acts, saying 'foreign currencies will strengthen, this will happen, that will happen', you will pay a very heavy price. The BRSA has taken some steps. I will make you pay a very heavy price."
He also addressed bankers who are engaging in illegal means by driving up demand for hard currency and issuing distorted predictions on foreign exchange currency rates.
"I am calling on those who are engaging in such activities ahead of the elections," President Erdogan said in a televised speech during an election rally in Istanbul on Sunday. "We know the identities of all of you. We know what you are doing."
Meanwhile, Tim Ash, an economist, said that Turkey's investigation on JP Morgan was a bad decision because the move will only discourage foreign capital flows that are important to the nation's economy.
"The reality is that investment banks will stop providing research on Turkey - and without that people just won't invest," he tweeted. "If you have no info, it's hard to make investment decisions."
As this develops, the investors are watching closely as the markets reopen today. They are observing if the investigation on JP Morgan will successfully stabilize the lira or not.
