With its deal for a majority stake in a Texas bank, Grupo Financiero Banorte of Monterrey, Mexico, aims to grab both sides of the remittance business.
"Remittance is going to be the wave of the future," Banorte chief executive Luis Pena Kegel said in an interview Monday. "That's a reason why we wanted to participate with a U.S. banking arm, to try to be able to capture the origination of a remittance and not only to be on the paying side."
The $17 billion-asset Banorte announced Jan. 26 that it would pay $259 million for a 70% stake in Inter National Bank, with the option to buy the other 30%. Inter National, of McAllen, has $1.1 billion of assets and 14 branches; the deal is slated to close in the fourth quarter. Mr. Pena Kegel said the acquisition would be accretive to earnings by 1.1% in 2007.
"This transaction was so positive and the difference in relative sizes of banks that are combining is so evident that there is absolutely no dilution for our shareholders," he said. "This is a revenue-synergy story; it's not a cost-synergy story."
Mr. Pena Kegel said Banorte is weighing deals for two U.S. retail remittance companies and plans to pull the trigger on one of them in the next few months. He would not name the companies but said that one acquisition would be partial and the other an outright purchase.
He estimated that Banorte has 5% of the $20 billion remittance business. It serves as the receiving bank for wire transfers sent to Mexico by Bank of America Corp., Wells Fargo & Co., and a few other companies. But about 82% of the profits on remittance transactions remain in the United States, he said, split between banking companies and retail distributors.
Mr. Pena Kegel predicted the remittance business will evolve, eventually generating the sale of other banking products and services.
It will change "from the cash-to-cash type of transactions that are being done today to the bank account-to-bank account platform," he said. That is "one of the reasons that we acquired INB. We will able to expand the scope of the account-to-account with the unique ability of now being able to have a bank account platform to originate the transactions themselves."
Banorte is not the only Mexican company looking for more crossborder business. In April, Banco Bilbao Vizcaya Argentaria bought Laredo National Bancshares Inc. of Texas for $850 million.
Mr. Pena Kegel said he is not worried about the competition, but conceded a U.S. banking unit was a "big missing item" for Banorte. Having one would help his company gain share in the remittance market and give it a cheap source of funds, he said.
The market along the U.S.-Mexico border "is so unbanked and so in the beginning stages of developing that there is room for everyone," he said.
Scott Alaniz, a Sandler O'Neill & Partners LP analyst specializing in Texas banking companies, said the financial returns of "the banking markets on the U.S. side of the Mexican border have been one of the best-kept secrets."
"The market itself is growing very rapidly and they are isolated geographically from a lot of the biggest markets, so it's much more difficult for some of the bigger banks to get in there," Mr. Alaniz said. "There is a lot of opportunity to bank Mexican customers."
Buying Inter National Bank would be an "easy first step" into the United States for Banorte, Mr. Alaniz said. Other expansion-minded Mexican banks would be smart to consider similar moves, he said.
Jorge Kuri, an analyst at Morgan Stanley, said in a note issued the day Banorte announced the Inter National Bank deal that the "merits of crossborder banking are debatable" and "few have ventured into it."
Count Mr. Pena Kegel among the believers.
"With the integration of our U.S. banking arm we can do a lot of things that the banking industry is not doing on either side of the border," he said.
For instance, Banorte is eyeing "bi-national" mortgages for Mexicans buying second homes in Texas and Americans buying in Mexico.
"These second homes have for the large majority been purchased in cash because these people are creditworthy in Mexico, but they don't have a credit history in the U.S.," Mr. Pena Kegel said. "The same thing happens when the retiree population of Texas tries to buy a property in Mexico." U.S. banks "are unable to establish a lien on the property."
Also on the drawing board: a bi-national checking account.
Mexican and U.S. banking regulations bar offering an account with checks cashed on both sides of the border, Mr. Pena Kegel said. "However, what you certainly can do is to link operationally, linking the platforms of INB and Banorte, and have the customers of both banks be able to do seamless transactions."
Banorte announced last week that its fourth-quarter earnings rose 28.7% from a year earlier but fell 12.7% from the third quarter, to $108.6 million. Earnings per share were 5 cents, up a penny from a year earlier. Its only other U.S. property is a New York securities firm, Banorte Securities International Ltd.
