History, money and power in the sale of Banamex | News from Mexico

It is not just any bank. It is a historical institution. Founded in the 19th century, the National Bank of Mexico (Banamex) played a central role in the country’s economic development. Even during the Porfiriato, when there was no central bank yet, it issued its own currency.

To speak of Banamex is to speak of the economic history of independent Mexico. The jauja of the Porfiriato, the hardships of the Revolution, the dynamism of stabilizing development, the crises, its nationalization and subsequent privatization 10 years later, again the crises and its controversial sale to Citigroup at the beginning of the new century when Mexico was in the process of economic integration with the United States.

For decades, Banamex and Bancomer fought over the top spot in the Mexican financial system. The first became US capital under the Citibanamex brand; the second, controlled by the Spanish, became BBVA.

In the last 10 years, Citibanamex has been losing market share. While BBVA remained the largest bank in Mexico, Citibanamex fell to fourth place. It was surpassed by Banorte and Santander. The reality is that Citibanamex was not doing well. It was still a profitable bank, but in decline.

In New York, its authorities decided to change the strategy of the entire global financial group in order to capture more value. In this context, they announced the withdrawal of all their operations in Mexico except those related to large corporations and wealth banking for people with a lot of wealth. They will therefore sell the Banamex brand with all its branches, the credit card portfolio, the payroll business, mortgage, family and small and medium business loans, its Afore, insurance company, real estate and one of the best art collections in the world.

The sale of Banamex could shake the national financial system depending on who buys the assets from Citigroup.

BBVA is not a candidate since the merger of these two entities would generate a very large bank and, therefore, with great systemic risk and the ability to generate monopolistic practices. In all likelihood, the Mexican regulatory authorities would reject a possible purchase of Banamex by BBVA.

If Banorte or Santander buy Banamex, the resulting bank would surpass BBVA as the largest financial institution in the country. From being HSBC, Scotiabank or Inbursa, this bank would become the second in the system. In any of these cases, the current balance would change. All of these options would have to be approved by Mexican regulators.

Another alternative is that a new player enters the market that comes from other latitudes. There is talk of a possible interest from two Brazilian banks to enter Mexico: Itau and Bradesco.

It is also not ruled out that Citi decides to sell Banamex through the stock market in an Initial Public Offering (IPO) where the capital is diluted, but a certain group of investors, with a certain percentage of the shares, has control of the bank.

Since the news was known, the owner of Grupo Salinas, which has Banco Azteca, number 10 in the system, said he was willing to buy Banamex. His offer, however, was not taken very seriously since, according to a Bank of America report, the value of Banamex would be between 12.5 and 15.5 billion dollars. According to the annual Forbes list, Ricardo Salinas Pliego has a total wealth of 11.7 billion dollars. Not even selling all its assets would be enough to buy Banamex. It could, yes, go into debt, with all the risk that this would imply.

Those are the options. I believe, however, that the Government of López Obrador will play an important role in the outcome of the sale. Ideally, they would let the market resolve this buying and selling, as long as they avoid the formation of a monopoly group. But this government likes power and, furthermore, it is nationalist. He prefers that the owners of large emblematic companies be from the country. If this is the case, and they tilt the field so that Banamex gets a Mexican group, the options would be Carlos Hank’s Banorte, Carlos Slim’s Inbursa or Salinas’s own Azteca in highly leveraged operations. The other alternative would be the bank’s acquisition through a stock market IPO by a group of Mexican investors.

This is going to be good because, as I said, Banamex is not just another bank. There is a lot of history, money and power here. The stake is high.

Leo Zuckerman

Twitter: @leozuckermann

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