Is Salinas Pliego the right person to acquire Citibanamex assets?

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Ricardo Salinas Pliego would be a controversial choice to acquire Banamex, given the fact he has already clashed with Mexico’s central bank, Banco de Mexico (Banxico for short), on more than one occasion. A vocal supporter of cryptocurrencies, Salinas Pliego recently announced that his Elektra store chain will become the first retailer in Mexico that will allow consumers to buy products with bitcoin, despite the fact that Banxico has stated that cryptocurrencies are not legal tender in the country.

Salinas Pliego has also butted heads with Banxico over cash remittances, as I reported for WOLF STREET in January 2021:

Banco Azteca… is sitting on a growing mountain of (paper) dollar bills. But the bank’s owner, Ricardo Salinas Pliego… wields a lot of influence, particularly with Mexico’s current government. Three weeks ago, the government unveiled a new draft law that will force the Bank of Mexico… to become the buyer of last resort of U.S. dollars that commercial banks cannot return to their country of origin. Banxico would be forced to buy those paper dollars, regardless of how these banks had obtained them.

Defenders of the law say it would help Mexicans shut out of the financial system, such as illegal migrants and hospitality sector workers paid in dollars, to save cash. They also argue that it is necessary after a crackdown on money laundering in the US led some U.S. banks to cut ties with their Mexican counterparts, which are now struggling to offload their surplus paper dollars.

But the law’s critics, including Banxico’s Deputy Governor Jonathan Heath, argue that it could undermine the central bank’s independence and risk tarnishing Mexico’s reputation with international financial authorities. Plus, it is only really intended to benefit one bank: Banco Azteca.

“There are plenty of arguments against the proposed central bank reforms,” tweeted Heath. “One of the most important is that it’s wrong to change the law only for the sake of one company, especially one that has already had a run-in with the SEC.”

In the end, the AMLO government backed down and the draft law was rescinded.

Another potential buyer of Banamex is the business association Empresarios por la Cuarta Transformación (Entrepreneurs for the Fourth Transformation, or E4T), which is led by Monterrey-based magnate José Javier Garza Calderon and is extremely close to the AMLO government. A few days ago, Garza Calderón called on other native businessmen in the country to join forces, so that Banamex can be “truly Mexican, where Mexicans and migrants can really buy shares and invest.” Like AMLO, Garza Calderón was at pains to emphasize that foreign investors should not be excluded from the bidding process.

Another Mexican company that has put its hat in the ring is Monterrey-based blockchain firm Isatek, though it’s unlikely to be a serious contender given that its $16 billion bid for Banamex is denominated in its own cryptocurrency, the so-called “Amero.”

Rating agencies could also play a role in determining who gets to own Banamex. Less than a week after City announced the sale of its Mexican subsidiary, both Fitch and Moody’s revised down the ratings and evaluations of Citibanamex. Moody’s placed all ratings and assessments of the consumer banking arm of Citigroup in Mexico on review for downgrade, “in order to incorporate the uncertainties that will come out of this divestiture and the implications on the bank’s standalone credit profile.”

Fitch, meanwhile, placed on “rating watch negative” not only Citibanamex but many of its subsidiaries including the Multiple Purpose Financial Society (Sofom) Citibanamex Cards, Citibanamex Insurance, and Citibanamex Pensions. Fitch said its decision reflected “the uncertainty about the potential credit implications for these rated subsidiaries from their parent company’s decision to exit the consumer, small business and middle-market financial businesses in Mexico. This could reduce Fitch´s assessment of the strategic importance of the financial services in Mexico for Citi and limit the role of the subsidiaries.”

The rating agency said it would resolve the bank’s RWN status once detailed information on the exit process is available, “including the potential buyer’s creditworthiness if the exit involves a sale of the Mexican subsidiaries or other market alternatives.”

With information from Aritegui Noticias

Mexico Daily Post