Mexican banking: Slim sets sights on Banamex

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By:
Chloe Hayward
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What does the future hold for Mexico’s Banamex, which Citi owns? Although the US bank claims that Banamex is important to its recovery, after its sub-prime losses, many bankers and analysts in Mexico are sceptical. Speculation is rife about the future of the bank.

"I think everything is likely right now and I really don’t think a sale can be ruled out," says Alejandro García, a senior banking analyst at Fitch Ratings in Mexico.

Another source questions the motives of new board members at Citi and whether they will push for a sale. "These new board members have no strong allegiance to Citi, or Citi’s history in Mexico. They are going to take whatever steps are necessary to secure Citi’s position in the US," says the source.

Citi says the bank remains committed to Banamex. "Citi’s international footprint is a unique and competitive advantage and an essential part of our growth strategy. Mexico is one of our top-four leading emerging markets and, through its universal banking model, has very stable revenues.

In this sense, Latin America and Mexico are focus regions for Citi. Banamex is an important part of our global franchise and we are committed to this excellent business."

Speculation about Banamex’s future has been rife for several months although the intensity has gone up a notch or two in recent weeks. In November, tongues were set wagging after Mexico’s wealthiest man, Carlos Slim, began buying shares in Citi, which some analysts interpreted as a means for him to try to gain some influence over Banamex.

On November 20 and 21, Inbursa, the bank that Slim owns, the sixth largest in Mexico, started to buy shares in Citi as its share price plummeted below $5. Inbursa bought up to $150 million of Citi shares before the US Treasury announced its $20 billion rescue package for the US group. It seems Slim’s actions were purely motivated by profit – within a week Citi shares gained nearly 60%.

However, Euromoney has learnt that Slim made Citi an offer of $12 billion to $14 billion for Banamex in early November that was turned down: "I believe Slim made an offer that was too low for Citi to accept – that is very much his style – he likes to buy cheap!" says a banker. Citi declines to comment.

Analysts and bankers alike think Banamex’s franchise is worth up to two times book value – in September the capital base already exceeded $10 billion. But Slim’s offer could be justified. For the first nine months of 2008, Banamex, the largest bank in Mexico, posted a net income of Ps6 billion ($451.8 million) – in contrast, BBVA Bancomer reported Ps17.5 billion over the same time period.

Despite Slim’s rumoured move in November, it is unlikely the billionaire will ever get his hands on Banamex. "If Slim were allowed to buy a big bank, like Banamex, then he would have a huge concentration of personal power in his hands," says one source. "I think for him to have a big concentration of banking wealth, as well as telecommunications, would not be a good idea."

Locally owned

Other potential buyers, such as Spanish banks BBVA and Santander, are also unlikely to get such a deal passed by the competition authorities if they show an interest. A source speculates: "I think the Mexican authorities would love to recover part of the Mexican payments system that is in foreign hands. If Banamex was bought by a Mexican it would mean 40% of the system would be locally owned again."

Pascual Odogherty, director of analysis of the financial system at Mexico’s central bank says: "I don’t think the nationality of the owner is important. What is important is to have good corporate governance and to have the local banks being appropriately regulated. A diversified ownership structure is essential, therefore a Mexican subsidiary that is owned by a single foreign bank has a risk of concentrated ownership just like a Mexican bank that is owned by one person would have. Neither situation is desirable."