Does the US government’s 36 per cent stake in Citi violate Mexican ownership laws? Have we got our countries confused? No.
Citi owns Banamex, a Mexican bank with circa 1,200 branches and 2.6m checking accounts. And Latin American finance blog Inca Kola sees a fight brewing over the Southern subsidiary:
The nub of the issue revolves around Mexican law, which states in crystalline manner that foreign governments cannot own more than 10% of any bank that operates inside Mexico. It’s as clear as a bell and on the statute. So as Banamex is a wholly owned subsidiary of Citigroup (C paid $12.1Bn or so back in 2001 for the bank) if the US Gov’t takes its 36% stake in Citigroup then it will be a larger-than-10% shareholder of Banamex, something against Mexican law. Won’t it?
Mexico’s National Banking and Securities Commission is therefore investigating, while Banamex is saying that the North American Free Trade Agreement will (somehow) protect it.
As Inca Kola also notes, selling Banamex would effectively mean an even worse deal for the US government. The unit’s been described by Citi as one of its “crown jewels”, managing to post an $896m net profit for 2008, making it one of the least toxic parts of the banking group. Banamex is accordingly part of Citicorp — the retail (read: non-toxic) part of the Citi empire. Inca Kola says (emphasis ours):
So here’s the question that’s been itching at me all weekend: Do Citigroup’s intentions regarding Banamex signal that the US Gov’t is only (or majority) buying into Citi Holdings, the toxic end of C?
It’s intriguing. It would be an über-underhand move concealed from the market so far and would cause uproar if the news hit. If it is true, then the US taxpayer is getting an even worse deal than s/he thought. In fact, it would likely make Uncle Sam the majority holder in the toxic bank to end all toxic banks.
However, if in all likelihood it’s not true and the US gov’t is getting 36% of the whole shebang, Citigroup is undoubtedly breaking Mexican law by holding onto ownership of Banamex. So either Mexico changes the law to suit present circumstances (possible, though it will be an absolute political field day for Calderon’s opposition) or Banamex will have to be sold to a third party, something that Pandit clearly doesn’t want to happen.
Related links:
Citi and some capital dilemmas – FT Alphaville