FleetBoston Financial Corp. is about to give Citigroup Inc. a run for its money south of the border.

Over the next five years, the $180 billion-asset banking company plans to boost assets in Mexico to between $4 billion and $5 billion, from around $850 million currently. If successful, the plan would make FleetBoston second only to Citigroup among U.S. banks with a major local corporate and retail banking operation in a country that senior executives at the bank view as a critical market.

"This market has enormous strategic importance for us," said James E. Callahan, general manager for BankBoston Mexico SA, FleetBoston's Mexican banking unit. "Mexico has the second-largest economy in Latin America after Brazil, enormous links to our key clients, and enormous trade flows with the United States."

Despite Mexico's potential and the fact that more than a dozen U.S. banks have operations there, only Citigroup has thus far launched a major effort in the country. Indeed, most banks have been content to limit activity to a handful of corporate banking services to U.S. and Mexican multinationals, trading of Mexican securities, or underwriting of Mexican government bonds on international capital markets.

In fact, some U.S. bankers in Mexico doubt there is much to the FleetBoston plans beyond corporate hype.

"They had five years to expand in Mexico and didn't do anything," said one banker who declined to be identified. "I see no reason to believe they are really going to do anything in the future."

FleetBoston executives retort that they had very good reasons to wait.

Geraldo Carbone, FleetBoston's president of Brazilian and northern Latin American operations. said one big reason was the series of crises that rattled Mexico and other countries after 1995, when a run on the Mexican peso triggered enormous volatility and uncertainty about Mexico's financial stability.

A perhaps more strategic reason for the wait was FleetBoston's decision to go it alone. Unlike Citigroup, which two years ago acquired Banca Confia and two big Spanish banks, Banco Santander Central Hispano and Banco Bilbao Vizcaya, FleetBoston decided to expand by building up internally.

"We didn't want to run the risk of getting hurt by operating in an environment we weren't familiar with, and it takes time to put together a management with the experience and expertise we needed to aggressively market our brand," Mr. Carbone explained.

One thing that sets FleetBoston apart is its long-standing presence in major Latin countries, dating back to 1917 when Bank of Boston opened its first office in Buenos Aires. The merged company has close to $10 billion in assets in Brazil, $9 billion in Argentina, and several billion more spread across Uruguay, Chile, Colombia, and Peru.

Analysts note that last year's merger between Fleet Financial Group Inc. and BankBoston Corp. created a much bigger capital base and leverage to expand into new businesses, including Mexico.

Michael Mayo, a banking analyst with Credit Suisse First Boston, notes that the merger with Fleet reduced the percentage of BankBoston's revenues from Latin America to less than 10% of total income, from more than 20%.

"BankBoston was already starting to bump up against internal limits to how much further they could expand in Latin America. Now the company is willing and able to increase its exposure," Mr. Mayo says.

Under a long-term plan for Mexico that the company began to implement last year, it is targeting roughly 800 multinationals with operations in Mexico as well as some 150 Mexican companies with more than $100 million in sales.

As part of that strategy, the bank has boosted assets in Mexico to $850 million, from around $600 million as recently as September, and plans to increase them by a further 35% this year. That includes around $600 million in loans and $250 million in treasury assets. In addition to putting loans on its balance sheet, the bank also arranged some $1.2 billion worth of loan syndications last year, distributing much of them to U.S. and European investors. That's up from $200 million in 1998.

The bank has also boosted staff in Mexico City to 85, from 55 a year ago. Among those hired were Alberto Jones, head of capital markets, who was previously at Chase Manhattan Corp and Citibank; Alfredo Martin del Campo as head recruiter from Bank of America Corp.; and Oliverio Perez as head of treasury operations.

Private banking, upscale retail banking, and asset management are next. Starting this year, FleetBoston will intensify marketing its brand under the BankBoston name it still uses across Latin America, and it is also considering opening several more branches in Mexico, with Monterrey a most likely first city, as part of a drive to build up a private banking clientele. Though plans have not yet been finalized, the retail strategy will probably include developing mutual funds and a banking Web site.

"Segmentation is the name of the game in retail banking in Latin America," Mr. Carbone said. The bank, he adds, is convinced that it can duplicate the success it has had attracting an upscale retail banking clientele in Brazil and Argentina, and that Internet banking could figure prominently in a drive to attract similar customers in Mexico.

"Latin Americans like using Internet channels and feel comfortable doing business over the Net," Mr. Carbone said.

The bank's approach comes at a moment when economic prospects for Mexico are looking stronger. Mexico's economy is expected to grow nearly 5% this year, and there is growing speculation that credit rating agencies may soon boost Mexico to investment grade.

In a strong hint that it is considering such action, Moody's Investors Service last month "estimated that Mexico is unlikely to take any actions that might jeopardize its good financial standing."

Moody's added that the lessened risk of any default is largely the result of "ongoing economic and political transformation begun in 1995 as well as from sound economic policies and the strong financial support of the international community."

One area that FleetBoston remains cautious about is business with small and medium-sized Mexican companies, largely because Mexican bankruptcy laws can make it difficult to seize collateral in the case of borrower default.

Though Mexico is contemplating legislation that would make it easier for banks to recover assets, Mr. Callahan says the company prefers to take a wait-and-see attitude.

Analysts seem prepared to give FleetBoston's venture a cautious blessing.

"Their skill set down in Latin America is pretty deep and something I suspect they can export into the Mexican market," said Thomas Theurkauf, a banking analyst at the Salomon Smith Barney unit of Citigroup Inc. "But they measure their success in years, not months."

FleetBoston's Latin American team couldn't agree more. Whatever the future ups and downs, Fleet Boston executives emphasize that Mexico is no short-term, quick-buck gamble.

"Our philosophy is to build up steadily because we plan to be here for the long term," Mr. Callahan said.

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