For decades, Citibank Inc. had been trying to get a meaningful foothold in Mexico's domestic banking industry, but to no avail.
To many observers it was ludicrous that while the bank operated a global branching system, it couldn't get full access to the 99 million Mexicans just south of the border.
Like other global banks, Citibank was stymied by Mexican laws blocking full-fledged entry by foreign banks. But that changed dramatically two years ago, after Mexico's financial crisis, when the peso plummeted and many Mexican banks were failing. To shore up its banking system, Mexico began encouraging foreign takeovers of its troubled banks.
Citigroup Inc. quickly grabbed up Banca Confia, a cash-starved bank that operates more than 300 branches across the country. The acquisition gave the New York-based bank access to the highly coveted consumer and midsize company markets in Mexico.
What happened in Mexico is recurring in many emerging-market countries, particularly in Asia and South America, where currencies also have plummeted and banks are failing. Spurred by a frantic effort to shore up their capital-short banks, such countries as South Korea, Thailand, and Brazil are rapidly discarding protectionist laws.
"It wasn't a voluntary process by the emerging-market countries," said Gary N. Kleiman, a senior partner at Kleiman International Consultants Inc., a Washington-based banking consulting firm. "If these countries had their druthers, they'd probably be where they were in 1997."
Like Citigroup, other large global banks-U.S. and foreign-are rushing to take advantage of the crisis-inspired opportunities.
Chase Manhattan Corp. bought Banca Patrimonio, a Brazilian investment bank, this year, and BankBoston Corp. has been looking at several banks in Argentina and Brazil.
Big U.S. nonbank financial companies such as GE Capital Corp., General Motors Acceptance Corp., Merrill Lynch & Co., and American International Group Inc. also are picking up emerging-market financial companies.
GE Capital, in particular, has been on a buying binge for several years, spending nearly $7 billion to acquire banks and leasing companies around the world, in countries ranging from Hungary to financially ailing Thailand.
U.S. banks often must compete with Canadian and European banks that are aggressively seeking to expand internationally. Only last month, UniCredito Italiano SpA and Germany's Allianz AG insurance group, working together, outbid Citigroup for Bank Pekao, Poland's second-biggest bank.
Activity has been particularly heated in South Korea, which opened its markets to foreign banks last year under pressure from the International Monetary Fund. Last February, for example, HSBC paid $900 million to acquire a 70% stake in Seoul Bank, South Korea's 10th-largest bank, which has assets of $20 billion.
Goldman Sachs & Co. last month said it plans to take a 17% stake in Kookmin Bank, the fifth-largest bank in South Korea, with assets of $28 billion. Goldman wants to use Kookmin's network to develop investment banking and capital market-related activities in South Korea, according to banking sources.
Germany's Commerzbank AG has acquired a one-third stake in Korea Exchange Bank for $500 million, and Newbridge Capital, the U.S. investment fund, is negotiating to buy a 51% stake in Korea First Bank, another of South Korea's big banks.
South Korea has become a buyer's market as more of its banks put themselves up for sale. Among them are Housing and Commercial Bank and Hanvit Bank.
Brazil is another rich market being picked over by international banks. ABN Amro last year paid more than $2 billion to acquire Brazil's Banco Real, the country's fourth-largest bank.
Britain's HSBC Holdings PLC recently spent $2 billion to acquire Brazil's Banco Bamerindus. Altogether, HSBC has paid $5 billion in the past two years to acquire banks in Brazil and other Latin American countries, including Mexico, Argentina, and Chile.
"Our aim is to maintain a balance between more stable, mature markets and more volatile, fast-growing markets," said John R. H. Bond, HSBC's chairman, in a recent interview.
Japan, which long and adamantly refused to open its financial markets to outsiders, has changed its tune as a result of its daunting financial crisis. Its banks and brokerage firms are facing hundreds of billions of dollars in problem assets and, like smaller countries in Asia and South America, Japan is seeking salvation through investments by foreign companies with deep pockets.
Merrill Lynch has acquired a large part of the retail brokerage network of Yamaichi Securities, which had been Japan's second-largest securities firm before it went bust last year.
Elsewhere, London-based Standard Chartered Bank PLC has acquired banks in Thailand and Indonesia, while GE Capital is reported to be negotiating to buy Bank Bali, a major Indonesian bank, for $157 million. GE Capital declined to comment on the report, which first appeared in London's Financial Times.
In many countries the trend is dramatically changing the mix of domestic and foreign ownership of banks, as documented by a recently released U.S. Treasury Department survey of worldwide financial market practices.
In Argentina, foreign banks control about 40% of banking sector deposits, up from 16.5% in 1994.
In the Philippines, foreign ownership of commercial bank assets has doubled to 16%, from 8% in 1993.
In Venezuela, the foreign share of the banking market exceeds 50%, up from 3% in 1993.
The opening of these markets is further proof that financial need, especially when that need is desperate, is far more effective at opening markets than negotiation. Until the crises, U.S. negotiators had been getting nowhere, despite years of multilateral and bilateral negotiations.
As recently as the end of 1997, the United States was threatening to pull out of talks on a worldwide World Trade Organization agreement for financial services unless emerging-market countries moved faster to liberalize laws restricting foreign competition.
Agreement on financial services was reached only after the financial crises had done their work. The WTO agreement took effect on March 1, after being ratified by 50 countries. But desperate for help, many emerging- market countries didn't bother to wait for the agreement to take hold before liberalizing their laws.
Not all countries have been converted. Several important holdouts remain, among them China, India, Malaysia, and even Canada. After decades of pressure from the United States, Canada is still debating whether it should allow foreign banks to set up Canadian branches.
And some large American banks have become reluctant to expand overseas. While Citigroup, Chase, and BankBoston take advantage of the new opportunities, others are moving in the opposite direction. Bank of America Corp. is scaling back its emerging-market activities, and Bank One Corp. is pulling up its stakes in overseas capital markets, sticking to more mundane and less volatile businesses, such as trade finance.
"The trend for the past 30 years has been to consolidate into your home base," HSBC's Mr. Bond noted. "Only a handful of institutions have been able to manage international commercial banking networks."