Mexico’s Shadow Bank Collapse Wipes Out US$5 Billion


Late one Saturday night in April 2021, a Mexico City-based payroll lender proved Alexis Panton right.

A year into the pandemic, Panton, who was then a debt strategist in New York for Stifel, Nicolaus & Co., had been snarkily warning that the math underlying Crédito Real SAB de CV didn’t add up. Hedge funds and big banks had ignored him, instead backing the company, a rising star of Mexico’s shadow banking industry that borrowed cash from big-time foreign investors and cut smaller loans to low-income people and businesses.

But in a middle-of-the-night revision, the microlender was admitting that its bad-loan book was 82% larger than it originally disclosed—just the type of issue Panton had cautioned about.

The revision, alongside an accounting error, disclosed the same week by a smaller payroll lender called Alpha Holding SA de CV, known as AlphaCredit, would eventually lead to a collapse of Mexico’s alternative banking sector, a wipeout of almost $5 billion for foreign bondholders, and a series of debt restructuring battles in the country’s opaque courts that are undermining the faith of investors in Latin America’s No. 2 economy. That’s not to mention the nightmare left for Mexicans who rely on such nonbank loans to handle financial emergencies or to keep their businesses running.

Omotunde Lawal, head of emerging-market corporate debt at Barings Ltd., likens the shadow banks’ situation to that of Mexican homebuilders in a housing implosion a decade ago. “The businesses eventually disappear, and other institutions pick up the business,” Lawal says. “It seems clear that the market will have a large level of distrust and skepticism going forward.”

Source: El Financiero

Mexico Daily Post