Incremental is not the Citigroup way.
When the giant financial services firm decided to beef up its presence south of the border, it dove in, spending $12.5 billion for Mexicos second-largest bank.
The deal that closed Aug. 6 for Grupo Financiero Banamex Accival in Mexico City magnified Citigroups presence in the country. Consider these pre- and post-merger comparisons: At June 30, Citigroup had roughly 200 branches in Mexico. By Sept. 30, it had 1,560. Core income rose to $124 million, from $11 million. Average assets more than quadrupled, to $49 billion. Customer plus credit card accounts totaled 25.5 million, up from 2.2 million. Assets under management were $5.54 billion, up from $2 billion.
Citicorp, the banking company that combined with Travelers Group to form Citigroup in October 1998, entered Mexico in 1929. It was one of only two banks not nationalized by the government in 1982, and it expanded in 1997 with a deal for the troubled Banco Confia in Monterrey. But with $9.5 billion of assets, it was only the countrys seventh-largest bank. Citis big move came May 17 when it unveiled the Banamex deal.
The combined operation, which continues to use the Banamex name, is No. 2 in assets but ranks first in equity, net income, and private-sector loans, with roughly one-quarter of the market. Banamex also has a huge share of the credit card market, which means Citi has a hook into the markets most affluent customers. (Unlike U.S. consumers, Mexicans do not stuff their wallets with plastic.) Banamex also holds roughly one-quarter of the countrys demand deposits and commanding positions in insurance sales and pension fund management through a joint venture with Aegon NV.
The deal gave Citigroup instant scale and a high profile in a key emerging market.
Mexico, with 102 million people, is booming, led by a strong export sector. Trade with the United States and Canada has tripled since Nafta was ratified in 1994, according to U.S. government statistics. Mexico also signed trade agreements with the European Union, Israel, El Salvador, Honduras, and Guatemala in 2000, and it is pursuing trade deals with countries in Latin America and Asia.
To reduce merger-related expenses, Citi announced this fall that it would cut nearly 8,000 jobs across the board, eliminating redundant positions in its Mexico operations. Mexican Minister of Finance Francisco Gil-Diaz said the layoff announcements were not surprising. All banks are reducing their employment and becoming leaner, he said.
Citi aims to cross-sell investment banking services and loans to Banamexs corporate customers. Roughly one-quarter of Banamexs $23 billion loan portfolio was lent to 65 companies.
Beyond Mexico, Citi hopes the acquisition will help it sell consumer financial products to the huge and growing Hispanic population on this side of the border. The fastest-growing minority in the United States, Hispanics number 35 million, and roughly two-thirds are Mexican or of Mexican heritage.
Two Banamex officers hold seats on the Citi board a concession chairman and chief executive Sanford I. Weill said was a first for a deal in an emerging market. And the combined company is being run by a Banamex veteran, Manuel Medina Mora, who reports to Victor Menezes, head of Citis emerging markets group. Mr. Menezes, along with vice chairman William R. Rhodes and Robert E. Rubin, chairman of Citis executive committee, have joined the Banamex board.
Citi has also listed its stock on the Mexican stock exchange, the Bolsa the first international company to do so.
Mexico is one of three countries Citi is targeting for growth. The others are Poland and Brazil. In its third-quarter financial results, Citi said Banamex is on track to deliver earnings growth of 5 cents per share next year. Citi expects to cut expenses by $200 million in the first year and to take a charge of up to $150 million to cover integration costs.
One area of concern is credit quality. Without credit bureaus, loan quality is nowhere near what it is in the United States. Citi appears to have confronted this issue head-on by recognizing Banamexs troubled credits and bolstering its loss reserves.
Marian Raab contributed to this story.
