In some ways, Grupo Financiero Banamex-Accival has the feel of a typical Citigroup acquisition: scale in a key developing economy, in this case Mexico, and a strong profile in retail financial services.
But the details of the deal say something more. Indeed, Citi executives expect something extraordinary out of the leadership position they will assume in Mexico on completing their $12.5 billion deal for that countrys second-largest banking company.
Banamex-Accival, also known as Banacci, would greatly expand Citis long-standing presence in Latin America and bolster its efforts to sell consumer financial products to a growing U.S. Hispanic population.
Other North American banks have crossed borders since the free-trade agreement of the mid-1990s, among them Royal Bank of Canada, which added Centura Banks to its roster of U.S. operations and plans to use it as a springboard for continental expansion. But Citi is taking on a far larger company.
Banacci has $35 billion of assets, 1,349 branches, and leading market shares in credit cards, Internet banking, and commercial banking. It would be blended into Citis much smaller operation there and operate under the brand name Banamex.
To underscore the importance of the transaction from Citigroups perspective beyond the $12.5 billion cash and stock price tag, two of Banamexs most senior executives would have seats on Citis board of directors a concession Citi chairman Sanford I. Weill called a first for an acquisition by Citi of a company in the emerging markets.
Roberto Hernandez, chairman of Banamex (the principal operating subsidiary of Banacci), and Alfredo Harp, chairman of Banacci, are to keep those positions and join Citis board. Manuel Medina Mora, chief executive officer of Banacci, is to head up the combined company and report to Victor Menezes, head of Citis emerging-markets group.
And Citi will list shares on the Mexican stock exchange, the first international company to do so, Mr. Weill said. Were going to be an important part of the Mexican economy, so our stock should be listed here, he said. We would like our shares to be owned by Mexican nationals.
The 35 million Hispanics who live in the United States two-thirds are either Mexican or of Mexican heritage present enormous opportunities for growth, Mr. Weill and other executives said. We look forward to the opportunity of planning and working together as to how we can reach out to that market, Mr. Weill said.
Citi has been looking to expand abroad, where it sees a chance to seize market share among the burgeoning middle class and find new venues to sell its array of banking, investment, and insurance products. For example, last year it bought Polands Bank Handlowy and Irving, Tex.-based Associates First Capital Corp., which gave it a boost in consumer finance in Japan.
It would be Citis second major acquisition of a Mexican banking company in three years. In 1998 it snapped up the financially troubled Banco Confia in Monterrey, which like other Mexican banks had been reeling over the lingering effects of the 1994 peso crisis.
Robert E. Rubin, a member of Citis office of the chairman, was Treasury Secretary under President Clinton and led the effort to arrange a U.S. financial rescue of Mexico. He is to join the boards of Banacci and Banamex, along with Mr. Menezes and William Rhodes, a vice chairman.
During a presentation to analysts Thursday, Mr. Menezes said Citi would continue to troll for acquisitions in Poland, Brazil, and Mexico, three countries seen as having the best growth potential. The deal for Banacci would bring a powerful strategic advantage: the brand name Banamex already resonates strongly with Mexicans and Mexican-Americans on both sides of the border, Mr. Mora said. Banacci has operations in California: a subsidiary called California Commerce Bank, which specializes in cross-border business for individuals and businesses.
Banacci also brings the second-largest market shares in bancassurance, or insurance sales, and in pension fund management through joint ventures it has with Aegon NV. In a statement, the Dutch financial services firm said it would explore its options with Banamex and Citi in light of Thursdays developments.
Mr. Mora also said Thursday that the deal would bring corporate clients added capabilities from Citis own corporate banking group and from Salomon Smith Barney. Within Banamexs $23 billion loan portfolio is roughly $6 billion of loans to 65 Mexican corporations, many of which overlap with relationships at Citi. Executives said they saw opportunities to expand corporate lending to a broader range of Mexican corporations.
Its really a transaction that relates to North America, Mr. Weill said. Banacci shareholders are to receive $6.25 billion in cash and 126.9 million Citigroup shares, which were valued at $6.25 billion at the close of trading May 11. Citi said it expects cost savings of $200 million, 50% of which are to come in the first year.
Citigroup said it would take restructuring charges of $130 million to $150 million to account for technology conversions and consolidation of Mexican operations.