As Citi prepares to leave Mexico, manhunt for its assets is underway

Large global banks including Spain’s Santander and Canada’s Scotiabank are interested, but Mexican President Lopez Obrador would prefer the country’s third-largest bank to return to its Mexican owners.

Last Wednesday (January 12), Citigroup broke the news It is selling its Mexican retail banking business after operating in Mexico for nearly a century. The U.S. bank said it would exit consumer and small and medium-sized commercial banking in Mexico, primarily through its Banamex subsidiary, which it acquired in 2001. Banamex itself is 137 years old.

The move is part of a “strategic refresh” of the bank by Citi Chief Executive Jane Fraser. The bank has already announced plans to exit most of its consumer businesses in Asia, EMEA, as its model focuses on wholesale and corporate banking and investing. Citi said it could exit its Mexico business by selling it or spinning it off into a new public company. It will keep its investment bank and private bank in Mexico, as well as a unit serving institutional clients in the country.

Tremendous influence

Citi’s sale of Banamex, Mexico’s third-largest bank by assets, will have a major impact on Mexico’s financial has assets Worth about $70 billion, including its consumer and commercial banking operations, fund management division, insurance division, branches, and Mexican art worth up to $2 billion. The private collection is one of the most valuable in Mexico and includes Frida Kahlo, Remedios Varro and Leonora Carrington and the muralist Jose Clemente Orozco and Diego Rivera.

Citi is not the first major global bank to leave Mexico in recent times. 2021, JPMorgan Chase announce closure In private banking in Mexico, wealthy clients in some of Latin America’s largest economies did what they always do during a crisis: They moved their money to international financial capital. In 2020, the bank’s operations in Brazil are identical.

There are now growing fears that Mexico may be experiencing the start of another round of capital flight. according to Data released by the Bank of Mexico showed that foreign investors cashed out $12.63 billion from Mexican bonds in 2021. This is the highest amount since data collection began in 1992 and even exceeds the 2020 total.

As I warned in my Dec. 10 article, the move coincides with a slowing post-2020 economic recovery in Mexico and an expected shift in Fed monetary policy,”Inflation in Latin America continues to soar despite increased rate hikes by central banks,” is one of the biggest worries in Latin America: “If financial conditions in the U.S. and other advanced economies suddenly tighten as the Federal Reserve and other major central banks start raising interest rates to curb inflation (which is no more than possible territory), it That could trigger a sharp sell-off of assets and capital outflows from the domestic economy. “

Gabriela Siller, an analyst at Mexican investment bank Banco Base, attributed capital outflows to “risk aversion for the Mexican economy”:

“This is due to low growth and government initiatives. We have debates on electricity reform this year, so it is likely that safe-haven and capital-light will continue.”

The same day Citi announced its departure from Mexico, Mexico’s finance ministry issued a statement in an attempt to allay concerns: “Citi’s decision does not reflect a lack of confidence in Mexico,” it said. Citigroup “promptly notified the country’s tax authority of its decision to exit retail and corporate banking as part of its global strategy.”

hunting in progress

The question now is: who can buy the bank’s assets and at what price?

The answer to the second question depends on who you ask. according to Bank of America analysts believe it could be worth anywhere from $12.5 billion (the price Citi paid for Banamex in 2001) to $15 billion. BBVA, which has not ruled out a bid for Banamex, has put a price tag of between $9.5 billion and $14 billion. Some analysts believe Citi could be worth more, possibly as much as $30 billion, if it were to spin off the bank and list it on a stock exchange, most likely in Mexico or the United States.

There are definitely a lot of interested buyers. These include Santander, Spain’s largest bank, which already has a strong presence in Mexico, and Scotiabank, Canada’s third-largest bank, which has been in Mexico since it bought troubled Grupo Financiero Inverlat in the 1990s. If Santander buys Banamex, it would mean that two Spanish banks would essentially dominate Mexico’s banking system, the other being BBVA, which owns Mexico’s largest bank, BBVA Mexico, with about 20 percent of the market.

That’s unlikely to please Mexican President Andres Manuel López Obrador (AMLO), who announced last Thursday that he would prefer Banamex (on behalf of the National Bank of Mexico) to hand over all Mexican ownership. hands. Mexico’s banking system is largely controlled by large global lenders, and after the tequila crisis (1994-5), they were able to acquire troubled or collapsed domestic lenders with almost nothing.

“I am delighted that Ricardo Salinas Pliego has expressed interest in buying it; he already owns Banco Azteca and I am sure he has the resources to do so. The same goes for the likes of Carlos Slim who owns Inbursa and Carlos Hank González of Banorte.”

Mexico’s third-richest man, Salinas Pliego, owns a string of companies including Elektra, a retail chain that sells appliances in installments to low-income consumers; Banco Azteca, which also focuses on middle-income consumers; and TV Azteca, Mexico’s second-largest broadcaster.

Controversial choice

Salinas Pliego would be a controversial choice as he has already clashed with Mexico’s central bank, Banxico, or Banxico for short.As a staunch supporter of cryptocurrencies, he recently announced His Elektra chain will be the first retailer in Mexico to allow consumers to buy products using bitcoin, although Banxico has stated that cryptocurrencies are not legal tender in the country.

According to my report, Salinas Pliego also had a dispute with Banxico over cash remittances wolf street January 2021:

Banco Azteca…sitting on more and more (paper) dollar bills. But the bank’s owner, Ricardo Salinas Priego… has a lot of leverage, especially with the current government in Mexico.Three weeks ago, the government unveil A new draft law will force the Bank of Mexico to…become buyer of last resort Commercial banks cannot return dollars in their country of origin. Banxico will be forced to buy these notes, no matter how these banks get them.

Defenders of the law say it will help Mexicans, such as illegal immigrants and hospitality workers, who pay in U.S. dollars, stay away from the financial system to save cash. They also argued it was necessary after a U.S. crackdown on money laundering caused some U.S. banks to cut ties with their Mexican counterparts, which are now struggling to get rid of a glut of paper money.

But critics of the law, including Banxico’s Lieutenant Governor Jonathan Heath, debate It could undermine the independence of the central bank and potentially damage Mexico’s reputation with international financial authorities. Also, it’s only really designed to benefit one bank: Banco Azteca.

“There are a lot of arguments against the proposed central bank reforms,” tweet Heath. “The most important of these is that it would be wrong to change the law for the sake of just one company, especially one that is already at war with the SEC.”

In the end, the AMLO government gave in and the draft law was withdrawn.

Another potential buyer of Banamex is a business association The Fourth Transformation Entrepreneurn (Entrepreneur of the Fourth Transformation, or E4T), led by Monterrey-based tycoon José Javier Garza Calderon, is very close to the AMLO government. A few days ago, Garza Calderón called on the country’s other homegrown businessmen to join forces and make Banamex “a place where real Mexicans, Mexicans and immigrants can really buy stocks and invest.” Like AMLO, Garza Calderón went to great lengths to stress that foreign investors should not be excluded from the bidding process.

Another Mexican company involved is Monterrey-based blockchain firm Isatek, although it is unlikely to be a real contender given its $16 billion takeover of Banamex named In its own cryptocurrency, the so-called “Amero”.

Rating agencies can also play a role in determining who owns Banamex. Both Fitch and Moody’s downgraded Citibanamex’s ratings and assessments less than a week after City announced the sale of its Mexican unit.Moody place All ratings and assessments of Citigroup’s consumer banking unit in Mexico are under review for downgrade “to take into account the uncertainty arising from this divestiture and the impact on the bank’s standalone credit profile.”

At the same time, Fitch not only placed Citibanamex on ‘Negative Rating Watch’, but also placed many of its subsidiaries, including Sofom Citibanamex Cards, Citibanamex Insurance and Citibanamex Pensions, on ‘Negative Watch’ list.Fitch Say Its decision reflects “uncertainty about the potential credit impact of the parent company’s decision to exit Mexico’s consumer, small business and middle-market financial operations on these rated subsidiaries. This could reduce Fitch’s strategic importance to Citi in Mexico’s financial services.” assessment of sexuality and limit the role of subsidiaries.”

The rating agency said it will address the bank’s RWN status once details on the exit process are available, “including the creditworthiness of potential buyers if the exit involves the sale of a Mexican subsidiary or other market alternatives.”

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