Citi struggles to bring back shine to its Mexican crown jewel

MEXICO CITY/NEW YORK (Reuters) - The newly refurbished Citibanamex branch in Mexico City’s affluent Del Valle neighborhood opens into a Scandinavian-chic space where salespeople chat with clients at touch screens. The next room, though, is filled with customers queueing up in front of tellers or waiting on benches. Outside, more line up to use the ATMs.

Customers wait to be served by employees inside at a Citibanamex branch in Mexico City, Mexico May 8, 2017. REUTERS/Henry Romero

The facelift reflects Citigroup Chief Executive Michael Corbat’s ambition to turn the group’s Mexican operation into a “state-of-the-art bank.”

The lines symbolize the challenge: overcoming the legacy of years of underinvestment and a series of scandals that left the 133-year-old institution lagging rivals in technology, profitability, market share and customer satisfaction. (Graphic:

Despite upbeat assurances from Citi’s New York headquarters, the view from the ground is that the bank has yet a lot of ground to recover and local and regional executives acknowledge they have catching up to do.

Jane Fraser, who heads Citigroup’s Latin America businesses, told Reuters a visit to an overcrowded branch shortly after she took on her role in 2015 convinced her the bank’s service required a thorough overhaul.

The ultimate goal was for people to say, “Okay, they’re back to being the best bank again,” Fraser said.

The bank is now reorganizing branches to make service more efficient, adding 2,500 ATMs to its network of 7,600 and partnering with startups to improve customer experience, she said.

To broaden its reach, Citibanamex introduced Saldazo, a card distributed at the OXXO convenience store chain, which allows for deposits and money transfers. Saldazo is not yet profitable, but it is popular, with 8,500 cards issued daily, said Pedro Solano, director of financial inclusion at Citibanamex.

Edgardo del Rincon, Citibanamex’s general manager for consumer banking, said rivals now had an edge in digital services, but that should change once his bank adopts new, better systems. “Most banks in Mexico updated their core technology platforms seven, eight, nine years ago. We’re doing it now, but the technology that’s available is much different,” he said.

For Corbat, Mexico is a big bet.

Even as he disposed of nearly two dozen other foreign units, Corbat has resisted calls to sell the Mexican operation and return proceeds to shareholders, citing its hearty profit margins, strong local brand and growth potential.

Last October, he pledged to add $1 billion to a $1.5 billion extra outlay dedicated to Mexico and underscored his commitment by adding “Citi” to the bank’s previous name - Banamex.

While Citi does not break out Citibanamex profits, analysts estimate that it delivers nearly one-tenth of Citigroup’s profits and produces a 15 percent return on equity, almost double what the entire bank reported last year.

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That makes Mexico crucial for the whole company to hit a 10 percent target Corbat initially set for 2015 but now aims to reach by 2019. Because of the missed targets, Citigroup's shares have lagged other big U.S. banks since Corbat took the helm in 2012. (Graphic:


Much of Mexico’s appeal is its potential for growth given that only half of its adult population has a bank account and many people visit banks to pay utility bills in cash.

In fact, its banking sector has been expanding by more than 10 percent a year, according to economic research from BBVA.

Yet a review of government data and dozens of interviews with current and former executives and competitors show Citi has struggled to capitalize on that growth. Citibanamex has lost market share to Spanish-owned BBVA Bancomer and Santander Mexico, as well as locally owned Banorte, and fallen behind in return on assets and service ratings.(Graphic:

Competitors are also spending more. BBVA, for instance, started investing $3.5 billion in Bancomer branches in 2013, and recently committed another $1.5 billion.

Citibanamex’s lineage dates back to late 19th century and its assets include the Palace of Iturbide, where Mexico’s first emperor lived, and one of the largest private collections of Mexican art. Previously owned by the federal government and known as Banco Nacional de Mexico, it was once the nation’s No. 1 bank and enjoyed a high degree of autonomy even after Citi acquired it in 2001.

That changed three years ago after it was rocked by a $500 million loan fraud, a U.S. criminal investigation into possible money-laundering violations, losses on loans to Mexican homebuilders, and problems with expense reporting and rogue traders.

Citigroup responded by installing new local management, adopting new risk controls and starting to upgrade the bank’s technology and its branches.

Francisco Tobias, Citibanamex’s finance chief, said losing market share was an “inevitable consequence” of the changes, but they should pay off in the long run.

“I’m more focused on having a profitable business with the right metrics that will take us where we need to be than obsessing about the market share that we lost,” Tobias said.

Young, educated Mexicans are a key target, said Citibanamex CEO Ernesto Cantu.

“Twenty-something years later, a little over half of them are still going to bank with the bank that gave them their first credit card,” Cantu told Reuters.

To accomplish that, Cantu will have to win over people like Claudia Hernandez, a 26-year-old college student from Mexico City.

Hernandez said she switched to Citibanamex two years ago because her employer would only deposit paychecks at that one bank - a common practice among Mexican companies - and has been frustrated by slow service ever since.

“They took a whole month just to set up the account,” she said. “I’d rather be at Santander or Bancomer. They don’t have as much red tape.”

At the Del Valle location, lines have not disappeared but more customers are using ATMs and waiting less, branch manager Maria Isabel Rodriguez Madrid said.

“Customers used to have to visit three different windows for three different transactions,” she said. “Now they can get everything done by waiting in just one line.”


Lost ground

Citigroup's underperformance

Service ratings


Reporting by Dan Freed and David Henry; Editing by Lauren Tara LaCapra and Tomasz Janowski