UPDATE 4-Mexico stance leaves Banamex in Citi hands for now

* Mexico allows foreign governments in its banks for now

* Policy allows Citigroup to hold onto Banamex

* Policy due to the global crisis, aimed to be temporary

* Government to propose tweaking bank laws to reflect this
(Adds quote from banker, consultancy comment, context)

By Jason Lange

MEXICO CITY, March 19 (Reuters) - Mexico said on Thursday
that foreign governments can own stakes in its banks given the
crisis in global financial markets, meaning Citigroup will not
have to sell its Mexican subsidiary Banamex for now.

The finance ministry had been examining whether a U.S.
government rescue plan to take a stake in Citigroup (C.N) would
force a sale of Banamex, Mexico's second-biggest bank and one
of the crown jewels in Citi's global banking empire.

"The law does not cover emergencies derived from the global
crisis," the ministry said in a statement, referring to
legislation barring foreign governments from owning Mexican
banks.

While the statement did not mention Banamex or Citi by
name, it made clear that Mexico does not want to rile battered
financial markets by forcing a Banamex sale.

Citi bought Banamex in 2001 for $12.5 billion -- the
biggest ever acquisition at the time in Mexico.

A forced sale could see Banamex go for a fire-sale price,
and a purchase by Mexican investors could mean billions of
dollars flowing out of Mexico that would hit the peso, already
down about 30 percent against the dollar since August.

Most of Mexico's largest banks are foreign-owned since a
financial meltdown known as the Tequila Crisis devastated the
banking sector in the mid-1990s.

Bankers were relieved that President Felipe Calderon
resisted pressure from nationalists to show foreign investors
the door.

"It's very positive because it maintains the rules of the
game," HSBC senior executive Emilson Alonso told Reuters at a
bankers' convention in the Mexican resort of Acapulco.

NEW BANKING LAWS SOUGHT

The U.S. government said last month it would boost its
equity stake in Citigroup to as much as 36 percent through the
conversion of up to $25 billion in preferred shares to common
stock.

Citi, the third-largest U.S. bank by assets, has been
reeling in recent months from its weakened capital base,
triggering a series of emergency government rescue efforts.

Mexico's government will ask Congress to change banking
laws to set out exceptions to limits on foreign government
ownership of local banks, the finance ministry said. Those
legal changes would keep in place a general ban on foreign
governments owning stakes in Mexican banks.

It said the current law banning foreign government
ownership of Mexican banks was more than 20 years old and
should be changed.

Spokesmen at Citi and Banamex were not immediately
available for comment.

Citigroup is among many financial institutions that have
received government bailout money to shore up their capital in
a U.S. economy stuck in a recession during the credit crisis.

In total, Citi has received $45 billion of U.S.
taxpayer-funded capital since October.

Citi's shares finished 15.58 percent lower at $2.60, though
the fall began earlier in the day after it said it may conduct
a reverse stock split as part of an exchange offer that could
give U.S. taxpayers a big stake in the bank. [ID:nN19411332]

The Mexican finance ministry said moves by foreign
governments to take stakes in Mexican banks "protect their
value, capitalization levels and maintain their operating
capacity in Mexico."

Mexico's peso MXN=MEX01 was little changed following
the announcement, ending the day 2.48 percent weaker at 14.269
per dollar, though 4Cast consultancy said in a note to clients
that the government's move should take some pressure off the
peso.
(Reporting by Jason Lange; Additional reporting by Luis Rojas
Mena and Armando Tovar in Mexico City, Noel Randewich and Tomas
Sarmiento in Acapulco, and Jonathan Stempel in New York;
Editing by Gary Hill)