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

MEXICO City, Feb 7 – Mining-targeted conglomerate Grupo Mexico (GMEXICOB.MX) is going closer to purchasing Citigroup Inc’s (C.N) Mexican customer banking unit but faces an uphill path in advertising the offer to skeptical buyers.

Grupo Mexico, headed by billionaire German Larrea, is between the very last candidates however standing in Citi’s year-very long journey to provide its retail device, recognised 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 nonetheless to be persuaded of the deal’s industrial logic.

A Grupo Mexico executive, who spoke on problem of anonymity, mentioned he was unconvinced by the decision to bid for Mexico’s No. 3 consumer loan company by asset, introducing that most directors had been “stunned” by it.

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

A Grupo Mexico spokesperson declined remark on the directors’ stance toward the offer.

Citi struggled for many years to satisfy its goal of turning Banamex, beset by a legacy of underinvestment and a sequence of scandals, into a “point out of the artwork lender.”

A obtain aspect analyst at a neighborhood fund invested in Grupo Mexico, who spoke on issue of anonymity, also explained that the corporation would have to have to make investments intensely in Banamex, supplied that large banking companies are sensation the squeeze from far more agile fintech companies.

“The Mexican banking market is pretty aggressive … All people is pumping capex into ‘going electronic.’ So I imagine (Grupo Mexico) are getting into a business enterprise which demands (heavy) capex,” the analyst mentioned. “I are unable to see the place the synergies are … It won’t make perception.”

Citi and Grupo Mexico both declined to comment.

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

Marketplace WOBBLES

Banamex’s share of the financial loan market place has fallen to 9.3{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} from 22.5{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} when Citi acquired it in 2001 and has regularly lagged its friends in return on belongings, in accordance to regulator info.

Meanwhile, Larrea could confront road blocks in chopping charges at the formerly point out-owned lender offered that Mexican President Andres Manuel Lopez Obrador has claimed 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 enterprise to “hold” from “obtain” when initial experiences emerged in December that it was discovering the offer.

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

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

“Adding a new arm which is entirely distinct … with no a doubt, the industry wouldn’t acquire that effectively,” he mentioned.

In fact, shares in Grupo Mexico – frequently a robust performer this calendar year – fell 9{3df20c542cc6b6b63f1c547f8fb389a9f235bb0504150b9df2ff264aa9a6c16c} in mid-January following media reviews that Larrea was in pole situation for the deal.

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

In an earnings connect with very last week, Grupo Mexico declined to solution inquiries about the offer.

THE Shiny Side

Local buyers and analysts are not universally bearish on the probable deal, with some citing Larrea’s business savvy.

“I see it extra like a mogul purchasing a bank than a miner (purchasing a financial institution),” mentioned Carlos Alberto Gonzalez, director of evaluation and inventory current market method at Monex. “A bank is often likely to enhance a portfolio.”

Larrea would not be the first Mexican billionaire to incorporate a lender portfolio to his empire. Carlos Slim, the country’s richest person, made his fortune in telecoms but also counts Inbursa (GFINBURO.MX) financial institution amongst its holdings.

Meanwhile, analysts at Barclays argued late previous year that “a high quality retail banking business enterprise (could) smooth the volatility of the mining organization.”

Nevertheless banking companies also have large technological and regulatory burdens, which could be a significant raise for Grupo Mexico provided its inexperience in the economic space, claimed David Suarez, former main money officer at Banamex rival Banorte (GFNORTEO.MX), now vice president at an agricultural financial commitment have confidence in.

“(Investors) are worried about Grupo Mexico’s deficiency of encounter to handle a financial institution of that dimension,” he instructed Reuters, emphasizing that Larrea will want to appeal to or retain “top notch” silver-haired groups throughout administration and the board.

“This is a countrywide, retail financial institution, it is really an solely distinct scale (to a market, regional operation),” he explained.

Reporting by Isabel Woodford in Mexico Metropolis
Extra reporting by Diego Ore in Mexico Town
Modifying by Christian Plumb and Matthew Lewis

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