Big global lenders, including Spain’s Santander and Canada’s Scotiabank, are interested, but Mexico’s President Lopéz Obrador would prefer the country’s third largest bank to pass back into the hands of Mexican owners.
Last Wednesday (Jan 12), Citigroup broke the news that it was putting up for sale its Mexican retail banking business after almost a century of operating in the country. The U.S. lender said it will retreat from consumer and small and medium-sized business banking in Mexico, which it mostly does via its Banamex subsidiary, which it acquired in 2001. Banamex itself is 137 years old.
The move is part of Citi’s CEO Jane Fraser’s “strategic refresh” of the lender. The bank had already announced plans to withdraw from most of its consumer businesses in Asia, Europe the Middle East and Africa as it focuses its model on wholesale and corporate banking and investment. Citi said it could exit its Mexican operations by selling them or spinning them off into a new listed company. It will keep its investment bank and private bank in Mexico, along with its unit that serves institutional clients in the country.
Citi’s sale of Banamex, Mexico’s third largest lender by assets, will have big implications for Mexico’s financial system. The bank has assets worth around $70 billion, including its consumer and business banking operations, fund management arm, insurance division, branches, and up to $2 billion worth of Mexican art. The private collection is one of the most valuable in Mexico and includes works by Frida Kahlo, Remedios Varo and Leonora Carrington as well as the muralists José Clemente Orozco and Diego Rivera.
Citi is not the first big global lender to leave Mexico in recent times. In 2021, JPMorgan announced the closure of its private banking operations in Mexico, as wealthy clients in some of Latin America’s largest economies did what they always do during crises: they shifted their money to international financial capitals. In 2020, the bank did exactly the same with its operations in Brazil.
Fears are now rising that Mexico may be going through the beginnings of yet another bout of capital flight. According to data published by the Bank of Mexico, foreign investors cashed out €12.63 billion dollars from Mexican bonds on 2021. It is the highest amount since figures began being collected in 1992, even surpassing the total for 2020.
The move coincides with a slowdown in Mexico’s post-2020 economic recovery as well as an anticipated shift in the Federal Reserve’s monetary policy, As I warned in my December 10 article, “Inflation Continues to Soar in Latin America, Even As Central Banks Intensify Their Rate Hikes,” this is one of the biggest fears in Latin America: “if financial conditions in the U.S. and other advanced economies were to suddenly tighten, as the Fed and other major central banks begin hiking rates to stifle inflation (which isn’t beyond the realms of possibility), it could spark sharp asset sell offs and capital outflows in their own economies.”
Analyst Gabriela Siller, from Mexican investment bank Banco Base, put the capital outflow down to “risk aversion regarding the Mexican economy:”
“This is due to low growth but also government initiatives. This year we have the debate on electricity reform, so it is very likely that risk aversion and capital light will continue.”
On the same day that Citi announced it was leaving Mexico, Mexico’s Ministry of Finance issued a statement trying to dampen fears: “Citigroup’s decision does not reflect a lack of confidence in Mexico,” it said. Citigroup “notified the country’s tax authorities in a timely manner of its decision to exit the retail and corporate banking business, which forms part of its global strategy.”
The Hunt Is On
The question now is: who gets to buy the bank’s assets, and for how much?
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