Analysis: Mexico miner Grupo Mexico’s bid for Citigroup unit faces skepticism

Analysis: Mexico miner Grupo Mexico’s bid for Citigroup unit faces skepticism

MEXICO City, Feb 7 – Mining-concentrated conglomerate Grupo Mexico (GMEXICOB.MX) is relocating nearer to buying Citigroup Inc’s (C.N) Mexican customer banking device but faces an uphill path in offering the deal to skeptical traders.

Grupo Mexico, headed by billionaire German Larrea, is amid the very last candidates continue to standing in Citi’s calendar year-long journey to promote its retail device, acknowledged as Banamex, and has placed a bid of up to $8 billion for it, Reuters reported previously this month.

But some analysts, shareholders and even Grupo Mexico executives have yet to be convinced of the deal’s industrial logic.

A Grupo Mexico executive, who spoke on condition of anonymity, explained he was unconvinced by the selection to bid for Mexico’s No. 3 buyer loan provider by asset, adding that most administrators had been “amazed” by it.

He extra that Larrea has informed insiders that the team wished to make investments idle money in Banamex, getting ruled out new investments in a lot more turbulent marketplaces like Peru, the place Grupo Mexico previously controls Southern Copper Co (SCCO.N).

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A Grupo Mexico spokesperson declined comment on the directors’ stance towards the offer.

Citi struggled for several years to fulfill its goal of turning Banamex, beset by a legacy of underinvestment and a collection of scandals, into a “condition of the artwork lender.”

A obtain aspect analyst at a nearby fund invested in Grupo Mexico, who spoke on problem of anonymity, also stated that the enterprise would will need to invest heavily in Banamex, specified that big banking institutions are sensation the squeeze from additional agile fintech corporations.

“The Mexican banking marketplace is quite competitive … Anyone is pumping capex into ‘going digital.’ So I believe (Grupo Mexico) are acquiring into a company which needs (large) capex,” the analyst reported. “I are not able to see the place the synergies are … It will not make feeling.”

Citi and Grupo Mexico equally declined to comment.

The heads of Mexico’s banking affiliation also declined to comment about the prospect of a miner taking around a lender when requested at a convention in late January.

Industry WOBBLES

Banamex’s share of the bank loan sector has fallen to 9.3{d0229a57248bc83f80dcf53d285ae037b39e8d57980e4e23347103bb2289e3f9} from 22.5{d0229a57248bc83f80dcf53d285ae037b39e8d57980e4e23347103bb2289e3f9} when Citi purchased it in 2001 and has consistently lagged its friends in return on belongings, according to regulator knowledge.

Meanwhile, Larrea could confront road blocks in reducing charges at the formerly condition-owned bank offered that Mexican President Andres Manuel Lopez Obrador has explained he opposes sweeping layoffs.

The prospect that Grupo Mexico could be saddled with an high priced and unwieldy new subsidiary has spooked some analysts.

HSBC downgraded the company to “maintain” from “obtain” when first reviews emerged in December that it was checking out the deal.

“We see no synergies or rationale for the acquisition,” the HSBC report mentioned.

Jose Vazquez, a economic analyst at Grupo Bursatil Mexicano, agreed it was challenging to see the transfer positively.

“Incorporating a new arm which is totally distinctive … with out a doubt, the current market would not take that properly,” he said.

In fact, shares in Grupo Mexico – generally a solid performer this year – fell 9{d0229a57248bc83f80dcf53d285ae037b39e8d57980e4e23347103bb2289e3f9} in mid-January next media stories that Larrea was in pole position for the offer.

The businessman is expected to use the publicly traded conglomerate to finance the sale instead than doling out the dollars himself.

In an earnings contact previous 7 days, Grupo Mexico declined to reply thoughts about the offer.

THE Brilliant Aspect

Neighborhood buyers and analysts are not universally bearish on the opportunity offer, with some citing Larrea’s enterprise savvy.

“I see it more like a mogul acquiring a bank than a miner (buying a bank),” mentioned Carlos Alberto Gonzalez, director of examination and inventory market approach at Monex. “A financial institution is always going to enhance a portfolio.”

Larrea would not be the initial Mexican billionaire to insert a bank portfolio to his empire. Carlos Slim, the country’s richest individual, created his fortune in telecoms but also counts Inbursa (GFINBURO.MX) lender amid its holdings.

In the meantime, analysts at Barclays argued late previous calendar year that “a high quality retail banking company (could) sleek the volatility of the mining business enterprise.”

Yet financial institutions also carry weighty technological and regulatory burdens, which could be a weighty lift for Grupo Mexico offered its inexperience in the money room, claimed David Suarez, former main economical officer at Banamex rival Banorte (GFNORTEO.MX), now vice president at an agricultural investment decision believe in.

“(Buyers) are anxious about Grupo Mexico’s deficiency of expertise to manage a financial institution of that size,” he explained to Reuters, emphasizing that Larrea will require to draw in or retain “major notch” silver-haired groups throughout management and the board.

“This is a countrywide, retail bank, it really is an totally unique scale (to a niche, regional procedure),” he claimed.

Reporting by Isabel Woodford in Mexico Metropolis
Supplemental reporting by Diego Ore in Mexico City
Editing by Christian Plumb and Matthew Lewis

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