By Cyntia Barrera Diaz - Analysis
MEXICO CITY (Reuters) - The U.S. government’s bid to take a big stake in Citigroup could mean the ailing U.S. bank might have to sell one of its prized foreign assets: Mexico’s Banamex.
Citi does not want to offload Banamex, which it bought in 2001 for $12.5 billion in Mexico’s biggest ever acquisition at the time, and says Mexican regulations about foreign government ownership of banks do not prevent it from keeping the unit.
But Mexican regulators and the finance ministry may have the final word on that, and Citi might need the cash from a Banamex sale to stay afloat anyway.
The U.S. government will boost its equity stake in Citigroup Inc to as much as 36 percent, giving it huge influence in the bank short of outright nationalization.
“Mexican law prohibits any foreign government or sovereign wealth fund from having an equity stake in local banks and thus Citibank ... may be ‘forced’ to sell Banamex,” analyst Mario Pierry from Deutsche Bank wrote in a report earlier this week.
The latest move in the U.S. bailout does not immediately inject more money into Citi, which may now need to sell assets to restore investor confidence.
Francisco Diez, director of emerging markets trading at RBC Capital Markets in New York, said that based on talks with local officials, any stake held by a foreign government would prohibit a foreign bank from owning a Mexican financial institution.
“So Citibank’s sale of Banamex is really fait accompli,” Diez said.
But Banamex, Mexico’s second-biggest bank, said on Friday the U.S. government’s stake in Citigroup does not violate Mexican law and will not change the company’s strategy.
“There are clear arguments that affirm that the (transaction) announced today does not conflict with any Mexican legislation,” Banamex said, citing the North American Free Trade agreement among Mexico, Canada and the United States.
Mexican government officials and the CNBV banking watchdog did not comment immediately.
Edward “Ned” Kelly, head of Citigroup’s global banking, said the bank was not open to disposing of assets it really wants to keep. “Banamex is a very important property to us, and we are intent on retaining it,” he said.
There has been talk for several months of local players teaming up to buy back Banamex.
Roberto Hernandez, the chairman of Banamex’s board, resigned from Citigroup’s board last week, stirring speculation that he might be preparing a bid.
Mexican media has also mentioned Mexican telecoms tycoon Carlos Slim, one of the world’s richest men, as a possible bidder.
Slim recently invested $250 million in New York Times Co and is known for buying struggling companies and turning them around.
Citigroup has also said it is not interested in selling its Polish unit Bank Handlowy.
But it may need to sell foreign assets for purely financial reasons.
“If loss rates come in greater than expected, and they are once again in the position that they need capital, I don’t think anything is off the table. I think they’ll do whatever is necessary,” said Keith Davis, research analyst at Farr Miller & Washington in Washington D.C.
“This ownership in Banamex is going to be sold; the Polish bank is going to be sold. These things are going to be sold. The real problem is this is a buyer’s market right now, and prices are going to be lower than what Citi would like them to be,” said James Ellman, president of hedge fund Seacliff Capital in San Francisco.
Additional reporting by Pablo Garibian and Robert Campbell in Mexico City, Juan Jose Lagorio in New York, editing by Gerald E. McCormick