Foreign Firms Are Transforming Mexican Banking

MEXICO CITY — Citibank’s $245-million purchase this week of Banca Confia, Mexico’s 10th-largest bank, is only the latest example of how foreign banks are transforming this nation’s financial landscape.

Transformations are common in the turbulent Mexican banking industry, which was nationalized in 1982, then privatized starting in 1991. The government intervened yet again after the 1994 peso devaluation and crisis to save 12 of 13 major banks that were drowning in a sea of bad loans.

Today, many of those banks are in the hands of foreign owners enticed by the Mexican government’s $20-billion bailout program that has cleansed much of the system. Mexico’s economic recovery, liberalized banking laws and brighter prospects for growth are also luring foreign investors.

Since 1995, foreign banks have made eight deals resulting in the acquisition of nearly one-fifth of the nation’s banking assets and 1,000 of its 7,333 retail bank branches.

But until this week, no U.S. banks were stepping up to the bar to buy major branch networks, in large part because U.S. bankers have been preoccupied with a restructuring of their own, analysts said.

In addition, many still have bitter memories of huge Latin American loan losses in the early 1980s. Others fear a replay of the Mexican government’s nationalization of banks in 1982.

Before Citibank’s deal, the most prominent foreign newcomers were Spain’s Banco Santander and Banco Bilbao Vizcaya, and Canada’s Bank of Nova Scotia.

Although not takeovers, Hong Kong Shanghai Bank last March bought 20% of Banco Serfin, Mexico’s third-largest bank, and Bank of Montreal bought a 16% interest in Bancomer--No. 2 in asset size--in April 1996.

But U.S. banks are finally coming out on the dance floor, in large part because of Mexico’s economic recovery, said Jason Mollin, a Latin American bank analyst at Smith Barney. Mollin said he expects the Mexican economy to grow an average 4.5% to 5% annually in coming years.

“If you believe Mexico is on a sustainable growth path, then you have to believe in the development of the financial system as well,” he said.

Other U.S. banks are expected to follow Citibank. John Sweeney, a U.S. Treasury official connected to the U.S. Embassy, told reporters this week that other U.S. banks are negotiating with the government to make banking investments here.

Bank of Boston, which owns Argentina’s fourth-largest retail banking system, is reportedly interested in establishing a beachhead in Mexico.

Bank of America Chairman David Coulter, who visited Mexico City to open an expanded office this week, said BofA is considering establishing a retail presence here. Commercial lending in Mexico already accounts for 45% of BofA’s Latin American business, he said.

The purchase of 200-branch Banca Confia, with its $3.4 billion in deposits, will give Citibank a 5% market share of Mexican deposits and presence in 29 of 31 states and a strong presence in the Mexico City federal district.

Citibank is buying the banking unit of Confia’s parent firm, Monterrey-based Grupo Abaco Confia. The parent’s investment arm, Abaco, has been rocked by clients’ charges of alleged fraud and mismanagement.

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