Economic recovery in Mexico has so far yielded a mixed profitability bag among U.S. banking companies doing business there, with Citigroup showing by far the best results.
The latest data available from the Mexican National Banking and Securities Commission, covering the first nine months of 1999, show that Citigroup Inc., Chase Manhattan Corp., and J.P. Morgan & Co. all made sharp improvements in earnings. Citigroup, the top-performing U.S. bank in Mexico, reported about $7 billion of assets and $153 million of net income.
Citigroup substantially boosted its operations in Mexico in 1998 when it bought the 250-branch Banca Confia for $45 million of cash and $150 million of fresh capital in a bid to expand local retail and middle-market banking.
J.P. Morgan, which has nearly $3 billion of assets in Mexico, came in second with $59 million of earnings; Chase had $1.1 billion of assets and earnings of $16 million. Both companies focus on corporate finance and capital markets activities in Mexico.
The earnings gains at some banking companies contrast markedly with results for the previous year, when financial markets in Latin America were turbulent as a result of economic travail in Asia and Russia.
In 1998, Citigroup lost nearly $30 million in Mexico, and J.P. Morgan nearly $21 million. Chase did not lose any money in 1998 but reported much lower earnings - $4.3 million.
Several U.S. banking companies reported losses. Detroit-based Comerica Inc., for example, lost about $3 million in Mexico in the first three quarters, compared with $4.2 million of profit for all of 1998.
BankOne/First Chicago Corp. lost $2 million through Sept. 30, but that was down sharply from its net loss of $12 million in all of 1998.
By far the biggest loss came at Bank of America Corp. The Charlotte, N.C., banking company lost $22 million in the three quarters after reporting $37 million of losses in all of 1998.
The mixed results confirmed reports from U.S. bankers about their struggles in Mexico. These bankers said that, though the country's commercial and investment banking businesses are booming, cumbersome regulations and staffing requirements as well as the need to operate out of expensive, separately capitalized subsidiaries can make earning money difficult.
Bank of America, for example, had 111 employees in Mexico during 1999, at a cost of about $9 million of salaries. Banking sources said that after the 1998 merger of BankAmerica Corp. with NationsBank Corp. and heavy losses for the company in Asia and Russia, Bank of America put much of its business in Latin America and other emerging markets on hold. Without a significant stream of revenues, they added, it can be hard to offset even routine operating costs.
A spokeswoman for Bank of America in San Francisco said the company conducts many lines of business in Mexico and "has a very profitable operation overall in the country." The figures reflect "just a small part of our local operations in Mexico for the past couple of years."
Bank of America's 1997 and 1998 results "reflect losses from proprietary trading, an activity we have since shifted away from, and the 1999 figures reflect both the impact of the Brazilian devaluation on the peso and our investment in the development of a broad array of Mexican products and services to support our global clients," the spokeswoman added.
She said Bank of America is off to a good start in Mexico this year.
Some companies, including FleetBoston Corp., seem undeterred by whatever difficulty Mexico presents. FleetBoston's Mexican operations lost nearly $2 million in the first nine months last year after earning $3 million in 1998, but the company has begun an ambitious plan to expand corporate and upscale retail banking in Mexico. Executives said they believe they can duplicate the success Fleet had in Brazil and Argentina, where it has assets of about $15 billion.
Market sources said Citigroup and Fleet are the only U.S. banking companies that have made a serious effort to expand in Mexico.
"Most banks still don't have enough volume to support the personnel they have in Mexico and are still trying to figure out what makes sense for them to do," said one banking source.