Mexico's Banks Still Need Protection
Since Mexico announced its decision in June to reprivatize commercial banks, the government has moved this divestiture process at record speed.
Even so, the absence of active participation by the United States and other foreign banks is perplexing.
The privatization of commercial banks followed eight years of nationalized banking.
In 1982, the government takeover was viewed as a prescription to stabilize a failing economy. In fact, the measure precipitated capital flight and exacerbated economic problems, undercutting any confidence the Mexican business community had in the government's ability to manage the economy.
"The crisis," as this period is known in Mexico, is now past. The country is recovering at an extraordinary pace. Inflation - 159% in 1988 - has come down; July's annualized 14% to 15% was the lowest level since 1976.
In 1990, 63% of Mexico's public-sector debt owed to foreign banks was restructured. Passive interest rates dropped from over 100% in 1987 to approximately 8% in 1991. Between January and July of this year the Mexican Stock Exchange, one of the world's fastest growing, rose more than 60% after inflation.
Thus, it is no mystery that the Mexican financial community is paying more than three times book value for the banks on the auction block. Mexico has instituted reforms that have stabilized its economy, making it a safe and attractive environment for foreign investors.
Values in the Stratosphere
Before the first banks were put up for sale, a study by Salomon Brothers estimated that the government would get around $6 billion for the divestiture of Mexico's 18 banks. But after the high-priced sale of the first banks, analysts have increased their estimates to between $8 and $10 billion.
Seven banks have already been put on the block. The first three banks, Banca Cremi, Multibanco Mercantil de Mexico, and Banpais are all highly profitable small and midsize concerns. Multibanco was sold to Probursa, one of the largest brokerage houses in Mexico, for $203 million - 2.66 times book value. Banpais was sold to CBI-Mexival for $180 million - 3.02 times book value. Banca Cremi was sold to Multivalores for $248 million - 3.4 times book.
The second package of four includes Banamex, Mexico's largest and most valuable bank; Banca Confia; Banoriente; and Bancreser. Confia, a midsize bank rated as one of the country's most profitable, was the first of this group sold, for well over three times book value.
Confia was followed by Banoriente, Mexico's smallest bank, going for four times book value. Bancreser was sold to a group of Guanajuato and State of Mexico businessmen for $140 million. And Banamex was sold in September to the brokerage Acciones y Valores (Accival) for $3.2 billion, 2.62 times book.
Under Mexican law, foreign participation in the ownership of banks and brokerage firms is permitted up to 30%.
It may be that U.S. banks decided to sit the auctions out and tend to business at home.
A better bet is that the banks are waiting for a North American free trade agreement, which the United States is insisting must provide for "national treatment" - permission for foreign financial institutions to compete without restriction.
With such permission, U.S. and foreign banks could do business in Mexico without having to acquire a percentage of a Mexican bank.
A Realistic Compromise
Though it is true that in a global market any foreign entity should indeed be allowed to compete, "national treatment" would seriously endanger the banks of a developing country such as Mexico. They don't have the strength of larger foreign institutions.
For this reason, the Mexican financial services industry has requested a longer phase-in period on this treaty issue.
This request is realistic. The United States should permit a reasonably prolonged period of integration, along with a similarly delayed provision of "national treatment."
Mr. Vest is chief executive officer of H.D. Vest Financial Services, based in Irving, Tex. He is also on the board of the U.S./Mexico Chamber of Commerce, Southwest chapter.