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Banamex sale back on?

21 October 2009

Jornada (my translation):

The Supreme Court of Justice (SCJN) could force the U.S. bank Citigroup to sell its profitable and highly regarded Mexican subsidiary Banamex, according to today’s (19 October 2009) Financial Times [registration required].

The case before the court is of vital importance because Banamex is estimated by the Financial Times and others to be worth at least 20 billion U.S. dollars, and accounts for 15 percent of Citibank’s net profits.

At issue before the court is a challenge to a finding by Secretarío de Hacienda (Treasury Secretary) Augustín Carstens, that the laws forbidding foreign GOVERNMENTS to have a major stake in Mexican banks “does not cover emergencies derived from the global crisis.” Well, no… the law was written back in the early 1990s when Mexican banks had collapsed in part BECAUSE the government had followed the same policies that the United States pursued, but was able to continue for another several years, heedless of the warning signs from the south.

Although Carstens claimed — on his own authority — in March 2009 that “government aid” (even when the government in question did become a major shareholder of the institution) was different than direct ownership, the Administration sent to Congress a bill that would regularize the Banamex exemption, but would force Citibank to offer 25 percent of the Banamex shares on the Mexican stock exchange IF the United States government was still a shareholder of the parent company after three years. And an additional 25 percent in six years. Of course, there were no guarantees that those purchasing Banamex stock would be Mexicans.

Mex Files was not the only one to question the logic of the ruling.  Inca Kola News predicted “this story will create open season on a Felipe Calderon (allegedly) selling out la patria to the gringos. Lopez Obrador and company will milk this one for all it’s worth; and it’s worth a lot.”  The Inca was ALMOST right.

It was  seen as selling out la patria to the gringos… but then again, everything the Calderón Administration has done, is doing, or ever will do, is selling out la patria to the gringos, per “Lopez Obrador and company”.

But, Lopez Obrador, et. al. are only one (although a major) political force in what is still a largely leftist and nationalist country — the “leftiest” of the bunch, but that bunch includes about 2/3rds of the electorate.  The PRI — usually described as “centerist” by foreign papers, simply to suggest it isn’t quite as lefty as the better known Lopez Obrador groups — has surged in recent by-elections, in good part because the former ruling party has consciously set out to reclaim the leftist and nationalist vote.

Now in the legislative majority, it’s no surprise that the PRI, with the backing of the parties to the left brought the case to the Supreme Court.

Guillermo Ortiz, governor of the Bank of Mexico, (and Secretary of the Treasury during the financial crisis of 1994 which led to the strict Mexican banking regulations) has suggested that ALL foreign-owned banks should be listed on the stock exchange, not just the one that in theory will be 25% listed in 2012, “if present trends continue”.

It’s not just the lefties that are rooting for a forced sale of Banamex in this instance.  The Financial Times says “some influential bankers” (from Mexico or elsewhere isn’t clear) claim a partial sale (via stock listings) would also benefit Citibank, which claims it is focusing on repaying the U.S. taxpayers who bailed it out.

My own quasi-lefty take is that a forced sale has a possible secondary positive effect.  If you look at Latin American economies, the ones with the best growth (Brazil, Ecuador, and — surprisingly enough — Bolivia) are those that have broken out of the mindset that sees the United States as the only possible market for their goods and services.  Those economies still in the dumper — Mexico and Peru — are those that still follow the discredited “neo-liberal” line and have seen the United States as their main (and often only) foreign market. Breaking the most visible symbol of U.S. financial dominance (even though the banks are mostly controlled by Spanish and British companies) — especially if there were a Brazilian or Mexican-Brazilian corporate buyer (as mentioned last time there were rumors of a Banamex sale), it might convince Mexican business to look south for their financing, or… like those successful (and mostly leftist-led) other Latin countries, begin focusing on internal markets and diversified trade (Asia, Europe, the rest of the Americas).

The irony is that the economic cliche was that when the United States got a cold, Mexico got pneumonia.  But, this very severe cold was caused by poor U.S. banking oversight, and Mexican banks are in good shape.  But, dependence on the United States for export sales, and for financing are have left Mexico seriously weakened and isolating itself from the vector of its infections might not be such a bad move.

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