Citigroup (C): Mexico moves the goalposts

And so Citigroup can likely keep Banamex, according to Mexican gov't politicos that have just earned themselves a "one large favour owed to me" card (and will surely know how to use it). Reuters translates the moneyline which is being used....

"The law does not cover emergencies derived from the global crisis"

.....which is, of course, a total affront to logic and commonsense. Y'see according to Mexican lawmakers the clear legal statute that does not allow any foreign government to hold more than 10% of a bank doing trade in Mexico suddenly doesn't count because......because....because the US gov't didn't WANT to buy 36% of Citigroup ....and that makes it different. Cos they said so. And that national laws go out the window and Mexican pants are dropped to US pressures isn't really news. After all, it's greedy human beings we're dealing with here so logic obviously has to take a back seat. I'll just shrug my shoulders and scrunch my brow a bit and go "waddya expect?".

Bloomberg does a good job of explaining the outcome of the Mexican mental and legal gymnastics that lawmakers have gone through to get to this point. Here's the link worth reading. The only thing lacking from both Reuters and Bloomie's reports are meaningful opposition quotes and positions. Bloomie has.......

"If it’s a proposal that helps, that doesn’t infringe against the sovereignty, the nationalism and the interests of Mexico, I say it should be approved. If it infringes, we’re going to dispute it.”

.......from an opposition PRD flunkey and Reuters hints at previous "pressure from nationalists", but the comments are low key. This is strange, because this story will create open season on a Felipe Calderon (allegedly) selling out la patria to the gringos. Lopez Obrador and company will milk this one for all it's worth; and it's worth a lot. Calderon gets the piñata treatment as of tomorrow morning.

Finetik and the latest on Itau/Banamex/Citi

Via the Finetik blog linked here, your info-hungry Otto finds out that Banco Itau (ITU) sent an official communication to the Brazilian regulators last night stating that Itau "..is not negotiating any stake in Banamex’s capital..".

Now that doesn't mean there's no interest, of course. The ITU honchos have already said they'd be interested purchasers if and when Banamex went up for sale. It does mean, however, that ITU isn't doing anything proactive right now. This fits with the official Citigroup (C) line that Banamex is not up for sale, of course. This won't quell the rumours, but it will put a dampener on short-term speculation for sure. However it should be clearly pointed out that none of this addresses the core issue here: As explained previously if the US gov't takes its 36% interest in Citigroup as planned, C will be breaking the Mexican law and cannot hold onto Banamex as things stand. That's as plain as day.

Finally, a word of kudos for the people at Finetik; I've only recently discovered the blog (which is part of a wider capital markets company that specializes in Latin America as well as Asia) and put it on my RSS, but I've been very impressed with the quality of information passed over there. I can thoroughly recommend it and say it would be a good addition to your own RSS feed (or regular bookmarked visit). Here's the link to the blog's main page.

Disclosure: I have no affiliation whatsoever with Finetik and have never even spoken to the people in my time. I just think it's a good blog that covers LatAm finance well.

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Itau, Banamex and Citigroup: Rumours in the village

Banamex, Itau and Citigroup: Rumours in the village

The first Itau-to-buy-Banamex scuttlebutt was reported here over the weekend, but now those drums are getting louder. Brazil's Jornal do Comercio has today placed Itau executives in Mexico City and goes as far as to say Itau will announce the purchase of Banamex from Citigroup next week. The price being hammered out revolves around U$12Bn, apparently.

Caveats needed:
1) Brazil throws out these bizrumours all the time. Do not treat them as gospel. However JdC is a better class of publication and is unlikely to start gossip for gossiping's sake.

2) If this is true, Pandit is toast. As shown in the previous note, Pandit has set his stall out to defend C's participation in emerging markets and Banamex in particular. You cannot say that Citi and Banamex "are one" on Feb 20th, sell the subsidiary a couple of weeks later and continue to be taken seriously. So does he want to be toast? I highly doubt it, so we have another reason not to trust the rumour. On the other hand, according to those who follow banking up North, Pandit has been on deathwatch for quite some time.

3) Itau (ITU) people are almost certain to be in Mexico, but it might be for the Redecard transaction that was announced last week. Itau is already the bulk shareholder in Brazil's Redecard but is apparently going to buy 4% of the 17% Citi is selling (again, a cash raise at C). So all this means there may be another reason to see Itau suits in the Banamex HQ.

DYODD. H/T finetik

UPDATE: Meanwhile, Bloomie is reporting this today as its top regional headline. Mexican opposition lawmakers want to limit foreign government ownership in the following way:

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"...Under the initiative published today in the official Senate gazette, if a foreign government has a stake in a foreign company that owns a Mexican bank, the foreign firm would have to reduce its ownership in the Mexican bank to less than 50 percent within 30 days. Senators from the opposition Institutional Revolutionary Party, or PRI, plan to propose the bill...."

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Toldya it would make headlines, RG :-)

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Citigroup and Banamex: There's a fight brewing

Citigroup and Banamex: There's a fight brewing

The Mex Files has a post up that notes the Mexican angle to last week's news about Citigroup giving 36% of itself over to the US Government. RG starts his note by saying that it's a story you probably won't get to read North of the Rio Grande.

I beg to differ. I think it might become a very big story indeed.

The nub of the issue revolves around Mexican law, which states in crystalline manner that foreign governments cannot own more than 10% of any bank that operates inside Mexico. It's as clear as a bell and on the statute. So as Banamex is a wholly owned subsidiary of Citigroup (C paid $12.1Bn or so back in 2001 for the bank) if the US Gov't takes its 36% stake in Citigroup then it will be a larger-than-10% shareholder of Banamex, something against Mexican law. Won't it?

Well, maybe yes and maybe no. It was interesting that Citi's CEO, Vikram "still got a job" Pandit, spent two days down Mexico way earlier this month. He met with the bank honchos of course, but also gov't lackeys and the regulator dudes too, so we hear. He also made it very plain that Citigroup plans to hold on to Banamex, saying things like the Banamex is Citi and Citi is Banamex and may sacred matrimory reign etc etc. Pandit dixit Feb 20th 2009:

"I want to make it very clear: Citi and Banamex are one and the same......The future of Citi is in emerging markets. It’s in Latin America. It’s in Mexico with Banamex.”

So with last week's Citigroup/US Gov't announcement that already has Mexican officialdom and opposition politicos smelling blood, it's worth noting how Pandit recently split C into two parts, namely Citi Holdings (all the bad stuff) and Citicorp (all the retail banking things that are profitable and everyone likes, including Banamex).

So here's the question that's been itching at me all weekend: Do Citigroup's intentions regarding Banamex signal that the US Gov't is only (or majority) buying into Citi Holdings, the toxic end of C?

It's intriguing. It would be an über-underhand move concealed from the market so far and would cause uproar if the news hit. If it is true, then the US taxpayer is getting an even worse deal than s/he thought. In fact, it would likely make Uncle Sam the majority holder in the toxic bank to end all toxic banks. However it does fit the Citigroup line that says Banamex is safe and not in any legal trouble and will stay part of C.

However, if in all likelihood it's not true and the US gov't is getting 36% of the whole shebang, Citigroup is undoubtedly breaking Mexican law by holding onto ownership of Banamex. So either Mexico changes the law to suit present circumstances (possible, though it will be an absolute political field day for Calderon's opposition) or Banamex will have to be sold to a third party, something that Pandit clearly doesn't want to happen.

Already there are overtures being made by other banks, which isn't surprising because unlike its lamentable parent company Banamex is a well-managed and highly profitable bank. I'd go as far as to say that Banamex is quite the jewel in the Citigroup crown and as such a prized asset that would be a major loss for both C and Pandit. But sharks are circling all right. For example here's an AP report noting Brazil's Itau is interested in the asset.

The price tag being bandied around the market right now is something in the region of U$12Bn to US$15Bn, meaning that Citigroup would most probably walk away with its original investment money (not to mention the eight years of profits generated by the subsidiary). Let's see how the story develops, but you have to wonder if Banamex is the canary in Pandit's coalmine. After all the moves and sounds made by Pandit this month any eventual sale of Banamex might become the straw that breaks the camel's back* and sees him "being resigned".

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Appendix: A few stats about Banamex as culled from the C website. This gives you an idea as to why Pandit wants to keep a tight hold.

• 1,233 branches
• 28,759 employees
• 4,492 ATMs
• 7.9 million credit cards
• 2.6 million checking cccounts
• 20.52% of all assets in the Mexican banking system

But wait! There's more!

• Seguros Banamex (Insurance): 5th largest Mexican insurance company
• Afore Banamex (Pension Funds): Mexico's largest private pension fund with over 4 million affiliates
• Accival - Acciones y Valores de México (Brokerage House): Top Brokerage of the country holding 16% of assets

UPDATE Monday 1pm: Here's a great little quote in an e-mail just received from Mexican political expert and owner of The Mex Files blog, RG:

"Yesterday's Jornada quoted the Sec. of Treasury for the cabinet of "presidente legitimo¨ Andres Manuel Lopez Obrador (yup, he's still around) as pointing out that legally, this would allow Mexico to nationalize Banamex outright. Gonna be fun to watch."


* metaphor mixing is a sacred right of the blogger

New Update Post: Banamex, Itau and Citigroup: Rumours in the village