Citi’s announcement that it will sell Citibanamex – its large consumer business in Mexico – is confirmation that there will be no exception to CEO Jane Fraser’s corporate-focused international strategy.
The US firm’s approach to its non-US business has long been clear; indeed, it was first deployed by Fraser in Latin America when she was CEO of the region for Citi. The bank then sold off its retail operations around the region – with sales in Honduras, Nicaragua and Peru, followed by Costa Rica, Panama, Guatemala and El Salvador, and latterly the larger businesses in Argentina and Brazil. The January 2018 disposal of its Colombian retail bank left Citi with just the to-be-rebranded Citibanamex as a regional consumer banking business.
Meanwhile, Citi focused on its corporate and investment banking group (Institutional Clients Group or ICG). In 2018, speaking to Euromoney, Fraser outlined the rationalization that would become her pitch for Citi’s top job: the number of local ICG ‘active clients’ had been slashed by around 80% between 2012 and 2017; from 8,800 to 1,500. At the same time, the list of global subsidiaries in the region rose just slightly – up 5% to around 6,000 – and the bank was able to maintain regional revenues at $4.2 billion, up from $3.9 billion in 2012.
Many within Citi thought that the scale and the proximity to the US of Citi’s Mexican business made the bank an exception to Fraser’s retail retreat
When Fraser became Citi’s CEO in October 2019 it didn’t take long for her to expand this strategy: 45 days into her tenure she announced her plan to pull out of 13 Asian and EMEA consumer franchises. Instead, the bank was to invest in its ICG business in these regions, as well as growth push in its new wealth management Citi Global Wealth.
However, many within Citi thought that the scale and the proximity to the US of Citi’s Mexican business made the bank an exception to Fraser’s retail retreat. Speaking to Euromoney in 2018, Fraser was adamant that she would not sell Citibanamex. “Never,” she replied. “Because the scale is so significant, and for Citi it is our second-largest market after the US.”
Citibanamex is Mexico’s third biggest bank in terms of assets – $44 billion of Citigroup’s $2.36 trillion of total assets – and generated $3.5 billion in revenue in the first three quarters of 2021 and $1.2 billion in pre-tax earnings.
In the 2018 interview, Fraser had been keen to talk up the consumer opportunity south of the US border. “Mexico has a young and growing population and a growing middle class, so you have very attractive demographics and dynamics,” she said. “You also have a very underpenetrated financial system, but it feels that in the last few years there has been an inflection point. Even though GDP growth in Mexico hasn’t been great since 2010, the financial system is growing in size and sophistication.”
All that has now changed. Announcing the sale, Citi said that it will now “be able to direct our resources to opportunities aligned with our core strengths and competitive advantages”.
Interested parties
There will be no shortage of interested buyers for Citi’s business, which the bank says will either be listed or sold privately. Ricardo Salinas Pliego, a billionaire and chairman of Banco Azteca and financial and retail company GrupoElektra, tweeted out his interest in acquiring the bank, and the local banking regulator would be in favour of adding another local player to a banking system that is dominated by foreign-owned organizations.
Scotiabank will likely be the keenest of the international banks operating in Mexico to buy Citi’s operations. The Canadian bank has been building its presence in the Pacific Alliance countries in recent years – most recently its acquisition of BBVA’s Chilean unit catapulted Scotia to a large player in that market and it is keen to do a similarly transformative merger in the Mexican market. Opportunities to buy a large bank in Mexico are rare and Scotia will likely be a determined participant in negotiations, even though Citibanamex would be a large acquisition to digest.
The market leaders – BBVA, Santander Mexico and that sole large domestic bank Banorte – will also take a close look, for market intelligence as well as a means to buy market share. This should enable Fraser to get a healthy valuation and give her the option to return capital to shareholders and answer critics who point to the bank’s returns gap to peers and Citi’s low stock price.
Shares in Citi traded up around 1% immediately after the announcement and analysts anticipate the news will add to expectations that Fraser’s simplified strategy will lead to an improvement in the bank’s valuation, which is still languishing at around 0.8x book value.
