U.S. banks are taking a closer look at Mexico following a move by Mexico's Congress to allow greater foreign ownership of the country's banks.

Though U.S. banking companies are unlikely to be interested in acquiring either Banamex or Bancomer, Mexico's two biggest, they could well make moves on other institutions in the years ahead.

Bankers said Banca Serfin, Mexico's No. 3 bank, and Banorte of Monterrey are possible targets.

Among the U.S. banks said to be interested in expanding are three already in Mexico: Citigroup's Citibank unit, the U.S. bank with the biggest presence there, as well as BankAmerica Corp. and BankBoston Corp.

Executives at those organizations were not available to comment on the Mexican legislative actions. However, other observers said it is becoming increasingly likely that U.S. banks are viewing Mexican acquisitions as viable.

"Banks that seek to do full-service retail banking in the Northern Hemisphere will have a definite interest in expanding in Mexico," said Charles Coltman 3d, vice chairman for global wholesale banking at First Union Corp.

Under legislation passed last weekend, Mexico will allow foreign institutions for the first time to acquire majority stakes in the country's three biggest banks.

The Congress also approved a measure to set up a special institution to dispose of some $61 billion in bad bank loans the government acquired after the 1995 financial crisis.

Uncertainty over who would bear the cost of the losses had deterred foreign interest in Mexican banks to a considerable extent, and kept Mexican bank share prices low.

U.S. banks entered Mexico in force in 1994 after the United States, Mexico, and Canada signed the North American Free Trade Agreement. Known as Nafta, it allowed foreigners to set up locally capitalized banks.

More than a dozen banks established Mexican units including Bank of New York Co., American Express Bank, BankAmerica, BankBoston, Chase Manhattan Corp., Bank One Corp., and Bankers Trust Corp. In 1995, the severe financial crisis abruptly curtailed interest in expanding further.

Since then, U.S. institutions have cautiously resumed expanding, setting up branches in Monterrey and other key cities and striking asset management agreements with Mexican banks.

In the biggest moves to date, Citigroup this year acquired Banca Confia, a consumer and middle-market business bank, and entered into a pension fund management agreement with Serfin.

J.P. Morgan & Co. holds a 10% stake in Serfin. HSBC Holding of London, which has a banking alliance with Wells Fargo & Co., owns 19.9% of the same bank.

Bank of Montreal has a 16% stake in Bancomer, and Bank of Nova Scotia owns 10% of the equity in Banco Inverlat.

Scotiabank acquired an option to purchase an additional 45% by July 31, 2000, while Spain's Banco Santander and Banco Bilbao Vizcaya have also acquired smaller Mexican banks. BankAmerica Corp., now merged with NationsBank Corp., earlier this year also looked at acquiring a bank in Mexico.

Bankers and analysts said any expansion in Mexico by U.S. institutions would be part of a broader consolidation in banking bausiness in North America.

"Any bank with a major presence in a border state like Texas and California is likely to have an interest in Mexico," said Brent Erensel, a Latin American banking analyst with Warburg Dillon Read in New York. "When you consider that most Mexican banks have a market cap of less than $2 billion, these are very affordable properties."

Bankers termed the legislation one of the most encouraging developments for the Mexican banking market since Nafta. They said Mexico, the second- largest trading partner of the United States after Canada, has grown increasingly important to U.S. companies since the trade act took effect.

As a result, U.S. banks are handling an increasing volume of Mexico- related business in areas such as trade finance, cash management, and retail and corporate funds transfers.

"Mexico is doing an awful lot of the right things and integrating North American business is an irreversible process," said Douglas Ransdell, senior vice president for international operations at Comerica Inc. of Detroit.

Still, bankers cautioned that with big U.S. institutions still working their way through large mergers, quick decisions about Mexico are unlikely. They also noted that strategy can vary from bank to bank.

"The legislation is very positive for Mexican banks and Mexican banking capital structures, said Darin Narayana, president and chief executive officer of Banc One International Corp., a Dallas-based international banking unit of Bank One Corp.

"But at the same time, each bank has to make its own strategic decision as to what's right."

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