Citicorp has signed a deal to acquire Mexico's Grupo Abaco Financiero for around $200 million, Mexican banking sources said Wednesday.
The deal would be the first major acquisition of a Latin American bank by a U.S. bank.
A spokesman for Citicorp declined to comment on wire reports about the planned purchase. But sources said the U.S. bank yesterday agreed to buy Abaco and its main banking subsidiary, Banco Confia.
The Mexican government, these sources added, had agreed to take over most of the problem loans on the books of Confia.
Abaco went up for sale in July after the group failed to meet regulators' demands that it raise an additional $250 million in capital.
Abaco has $4.4 billion of assets, a reported book value of $119 million, and around 200 branches spread across Mexico. Many of the branches are concentrated in Mexico City, Monterrey, and Guadalajara. Acquisition of Abaco will make Citicorp the seventh-largest bank in Mexico, with some $6.5 billion in assets there.
Earlier this year Citicorp said it was planning to expand both its retail and corporate banking presences in Mexico and was also planning to expand its branch network to do business with medium-size Mexican companies.
Other U.S. banks with operations in Mexico have adopted a similar strategy. Sources added that BankAmerica Corp., which opened a $15 million headquarters in Mexico City on Tuesday, planned to open as many as 50 branches in Mexico over the next few years to develop retail banking and middle market corporate business.
Bloomberg News Service yesterday quoted BankAmerica chairman David Coulter as saying that he saw the northern Mexican states of Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas as increasingly attractive places to do business.
"The border between California and Mexico continues to be blurred," Mr. Coulter said Tuesday in a speech to the American Chamber of Commerce in Mexico City, according to Bloomberg. "It makes little sense to stop at a line drawn in the sand."
He added, "In Mexico, retail banking is attractive today."
Banking sources in Mexico City said BankAmerica was considering buying a Mexican bank, opening branches on its own, or teaming up with a Mexican institution to expand its operations. BankAmerica's Mexican banking operations are based in Mexico City and have branches in Monterrey and Guadalajara. Sources said the bank is particularly keen on extending its activities to smaller Mexican cities such as Puebla, Nuevo Leon, and Aguas Calientes.
Moves by the two U.S. banks follow a spate of acquisitions of Mexican banks by foreign banks. HSBC Holdings PLC, for example, recently acquired a 20% stake in Banca Serfin, Mexico's third-biggest bank, with an option to acquire majority control. Two Spanish banks, Banco Santander and Banco Bilbao Vizcaya, have also acquired Mexican banks.
According to Bloomberg, Citicorp has yet to reach an agreement to buy Abaco's other subsidiaries, including Chicago-based Rodman & Renshaw Capital Group; an insurance firm; a leasing business; a money exchange business; an auto loan company; and a pension fund management joint venture, Principal Mutual Life Insurance company.