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The quest for a new El Dorado

Foreign banks looking to diversify in international markets have pinpointed Latin America as the new growth area. But whereas in the past they largely confined themselves to investment banking and elite customers they are now seeking to build broader retail operations, either through outright purchases of local banks or buying large stakes in them. Michelle Celarier reports on a race that has sent the prices of even the shakier institutions to surprising levels.

Bullish Spanish fight it out

A month after Adolfo Lagos Espinosa was brought in as the new chief executive of Grupo Financiero Serfin, Mexico's third-largest and most troubled financial institution, he had a surprise call from the bank's chairman, Adrian Sada Gonzalez. Recalls Lagos: "He said somebody from HSBC had come to visit him and would I talk to them about a possible investment."

The highly regarded Mexican banker wasn't keen. Though only in his job for a few weeks, he had already put together the makings of an ambitious recapitalization by drawing on his associations with finance minister Guillermo Ortiz, a former college classmate, and JP Morgan's M&A chief, Roberto Mendoza. Mendoza knew him well from the 1992 privatization of Mexico's Grupo Financiero Bancomer, where Lagos's reputation was built.

Having convinced the government to take on an unprecedented $2.7 billion of Serfin's bad loans - one-third of its portfolio - and after persuading JP Morgan to make a $290 million bridge loan for immediate capital needs, Lagos decided to postpone finding a foreign partner until the bank's turnround was more assured.

As for HSBC Holdings, the London-based financial group whose major emerging market activity is in Asia, "I didn't even know who these guys were," he says.

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