| | |  Business News | February 2009 
The Battle for Banamex
 Edgar Amador - TheNews.com.mx
Finance is the continuation of war through other means, and the battle for Banamex, Mexico's second-largest lender, will stand out in history as one of the landmark events of this century's financial history.
Banamex is about to be sold by a collapsing Citigroup to a group of Mexican investors. There are at least two groups battling for the big prize: One is led by the current Mexican management team of Banamex, which includes Manuel Medina Mora, Citi's director for Latin America. The other is one-man group Carlos Slim, who may bid through his bank, Inbursa.
The story goes back a few years, when financiers Roberto Hernández and Alfredo Harp, after being defeated by Carlos Slim in the contest to grab Telmex during the privatization of public assets in the late 1980s and early 1990s, ended up acquiring the then-largest Mexican bank, Banamex.
Banamex survived relatively unscathed from the disastrous Savings Protection Banking Fund, or Fobaproa, bail out with help from the government, and for years was the flagship of Mexico's struggling but independent banking system.
But when Banamex unsuccessfully tried to thwart a takeover of larger rival Bancomer by Spain's BBVA, a group of shareholders that included Roberto Hernández and Alfredo Harp, alongside corporate stars such as Cemex's Lorenzo Zambrano, decided to cash out. They simply turned around and sold the bank to then-almighty Citigroup.
For years, Banamex was a perfect fit for high-flying Citigroup, accounting for as much as 12 percent of Citi's total revenues. It was a match made in heaven, until all hell broke loose.
As of the close of the disastrous Black Tuesday on Jan. 20, Citgroup was worth $19 billion. If we assume that Banamex can be sold for the $12 billion Citi originally paid for it, then Banamex would be worth more than half of Citigroup.
In other words, if Citi's board wants to give existing shareholders the most for its buck, the best way to enhance Citi's value is to sell Banamex. The Mexican subsidiary clearly is worth more if split out from Citi than if maintained as part of the diverse group of assets in Citi's far-reaching portfolio.
Keeping Banamex at this point would make for an odd-looking bank, where the pieces may be worth more than the whole. At the current pace of market capitalization losses, Citigroup is about to become a Mexican bank headquartered in New York.
Citigroup has only 800 branches scattered throughout the United States, while Bank of America has 6,000 there, and Banamex more than 3,000 branches here. With a decreasing number of assets, Banamex would become an oversized presence in a dramatically shrunken Citigroup.
There is no business model under which a small Citi and an oversized Banamex could exist, and Citi's largest shareholder, the U.S. government, is growing desperate with what they have found on Citi's balance sheet.
There is no other option. Citi will sell Banamex. There is no way around it.
And here is where the battle among local investors comes in: The Mexican government has now realized the big mistake it made in allowing an all-foreign financial system. Its ability to prop up lending in a banking system where decisions are not taken at home is minimal. And they want to change that, especially during the current credit crunch, by backing a Mexican solution for Banamex.
Reports say that Carlos Slim bought between 3 and 4 percent of Citi shares back in December, so he clearly has an interest in the deal. However, his existing dominance is Slim's major hurdle: Banamex purchase may imply excessive influence of Slim in Mexico's economy.
The other alternative is a group of some of the largest Mexican investors, led by the current management team, with a long list of local investors pooling together with government support. The group may then buy a controlling stake and perhaps sell the rest of the capital in local markets.
The battle for Banamex will be hard-fought, but whomever the final buyer may be, Mexico's financial history has reached a turning point, and Mexicans are gradually taking back the control of the local banking system.
Edgar Amador is currently deputy director general at Dexia Bank and was previously Deputy Finance Secretary for the Mexico City Council. |
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