Citigroup Inc. spent 16 months preparing its Banamex unit for a sale that ultimately fell through after the meddling of the Mexican president, Andres Manuel Lopez Obrador.
representatives of the US Bank and Grupo Mexico Sab de Germán Larrea spent months preparing the final touches on an agreement for $7 billion that would have allowed the Mexican mining magnate to acquire most of Banamex. Financing was arranged and press releases were written. All that was needed was Larrea’s official signature.
So AMLO, as the Mexican president is known, went a step too far.
In a move that shocked Mexico, the president seized a section of Grupo México’s railways in the state of Veracruz. Declaring the span as of “of public utility”, transferred it to a government entity. It was not an isolated event. Just a few weeks earlier, AMLO had introduced a set of bills that would extend the state’s reach into civil aviation and mining.
Taken together, these unprecedented moves scared Larrea to the point that he looked to private assurances that the banking industry would not be next on the president’s list, and asked if similar actions could be attempted after the Banamex deal was closed. , according to people familiar with the matter.
Tranquility was slow in coming, so Larrea took a long time to sign an agreement, the people said. Then, earlier this week, AMLO slipped that he was considering a public-private partnership for Banamex, a move that added even more uncertainty to Larrea’s ability to carry out the offer. When Citigroup executives approached him with an ultimatum (sign on the line or they would have to go through with an initial public offering), Larrea told them to do what they had to do.
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And so Citigroup announced Wednesday that it would go ahead with a public offer for the business, an option that has always been on the table but was less favored by executives because it would take longer.
“The reality is that it takes at least two to get a deal done,” Susan Roth Katzke, an analyst at Credit Suisse Group AG, said in a report to clients.
Finding a buyer didn’t seem so complicated a year ago, when Citigroup CEO Jane Fraser began the sale process. Bidders, including Spain’s Banco Santander SA and billionaires Carlos Slim and Ricardo Salinas, began lining up. With some $44 billion in assets at stake, they were attracted by the prospect of owning the second largest bank in the country, with roots going back 130 years.
But early on, AMLO made his preferences known for how any sale should proceed. The leftist president had publicly asked that it be a local, and not a foreigner, who bought the bank and demanded that there be no mass layoffs after the purchase was closed. He also wanted to preserve the art collection, of great historical value, that Banamex owns.
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Even on Wednesday, after Citigroup had stated that it would seek an initial public offering, AMLO mused that Banamex “could represent a good opportunity” for Mexico to own a bank and the government would have $3 billion for a stake in Banamex.
Citigroup, which has long said its continued investment in Banamex was proof of confidence in the country’s prospects, still faces the daunting task of separating the institutional business it plans to continue operating in Mexico from the retail unit it wants to destroy. On the plus side, the IPO option allows the bank to renew the share buyback this quarter. They had been on hold because the sale was expected to hurt capital levels.
“We conclude that the optimal path to maximize Banamex’s value for our shareholders and advance our goal of simplifying our company is to move from our two-pronged approach to focusing solely on an IPO of the business,” Fraser said in a statement on Wednesday.
The Weill Era
When Citigroup announced that it would acquire Grupo Financiero Banamex-Accival in 2001, it was instantly heralded as a landmark deal for the country following the devastating “Tequila Crisis” of the mid-1990s. At the time, analysts said the price of $12.5 billion It is equivalent to all foreign direct investment in Mexico.
Back then, Citigroup was led by Chairman Sanford Weill, who spent years assembling a collection of Wall Street and consumer finance deals that helped cement the bank’s spot as the world’s largest financial institution.
Fast forward two decades, and Fraser had only been at the top of the bank for a few months when he announced in April 2022 that the company would divest 13 retail banking divisions worldwide as part of his push to simplify Citigroup and focus on more lucrative deals. One division was missing from the list: Banamex.
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At the time, the New York-based bank insisted it was the right size to compete effectively in Mexico. In fact, the unit housed the company’s largest network of retail branches.
Less than a year later, Fraser took a radical turn and announced that Banamex had finally fallen victim to the CEO’s drive to improve efficiency. At the time, Citigroup said the unit had approximately $44 billion in assets and consumption around $4 billion in tangible common equity allocated on average.
Mexican bank Grupo Financiero Banorte, Banco Santander, Banca Mifel and billionaire Carlos Slim’s Grupo Financiero Inbursa SAB expressed interest in or submitted offers for Banamex at some point.
But one by one, they all withdrew or were told by Citigroup that they would no longer move forward in the process. Wednesday’s ad rejected the only remaining bidder.
Citigroup’s task now will be to separate its institutional and private banking services in Mexico and prepare the retail operation for a public offering. He expects the work to be completed in the second half of next year, allowing an IPO to take place in 2025.
That means the offer probably it will take place after AMLO leaves office.
RD
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