Lisa Simpson
Oct 30,2009
In: Bank Foreclosures

Citigroup Likely to Lose its Most Valued Mexican Subsidiary

Citigroup is all set to lose its most valued Mexican subsidiary.

Some senators of the opposition have focused on the fact that the bailout funds utilized by Citigroup in 2008 have placed its Mexican subsidiary, Banamex in trouble for breach of the laws of the nation. The latter puts a ban on foreign governments having any stake in the national banks.

For Citigroup the matter is very serious. Banamex is one of the jewels in its battered crown. It is responsible for about 15% of the international profits of Citigroup. Many estimate its worth to be $20 billion – on the conservative side.

This case has the potential to tell on other banks that are functioning in Mexico’s banking sector dealing with foreign matters. It now has governments to be the shareholders following the international financial crisis. The other banks most likely to come under the cloud are AIG, Bank of America, Bank of New York Mellon and also some European banks like Royal Bank of Scotland.

The Banamex issue has drawn undue attention partly because it is the second biggest bank in the country. Banamex stands for Banco National de Mexico. It has spent a sizeable amount for the cause of Mexican nationalism. Thus it is not surprising that the politicians have singled it out as the victim of an escalating loud campaign to get the law clarified. Particularly it wants to thoroughly check the handling of the matter by the finance ministry of Mexico. The ministry ruled in March that the position of Banamex was all right as the stake of the government of USA was transitory and circumstantial. But the senators now say that they want a decision from the Supreme Court to say whether that ruling was constitutional or not. The pundits say that if the court decides against the ministry it would mean Citibank selling its stake in Banamex. The court has 30 days to come to a decision. Speaking to the Financial Times the bank said, “The Mexican ministry of finance has concluded that we are in compliance with Mexican law. In addition, our goal is to repay Tarp as soon as possible, and that will put the entire issue to rest.”

Guillermo Ortiz Martinez, chairperson of the Board of Directors of Bank for International Settlements, speaking in an interview with Financial Times said, “It would be very important, I think that it is very desirable for all the subsidiaries of foreign banks to go public in Mexico, to quote their shares in the Mexican stock exchange.”

repos-banner_468x602