Opinion

Mexico, in the sights of large Spanish banks

photo_camera Edificio de La Vela que alberga la sede del banco español BBVA (Banco Bilbao Vizcaya Argentaria) en Madrid AFP/PIERRE-PHILIPPE MARCOU

With the economic fundamentals leaving behind the long financial crisis of 2008 and the COVID effect, with sector profits already at pre-pandemic levels (Spanish listed banks earned $22.8 billion in 2021, 45% more than a year earlier), with the expectation of rate hikes, which will give more margins to the financial business, and with the manna of European funds, which will boost economic activity, large Spanish banks are once again setting their sights on Latam, a region with very tasty profit margins. And in the region, Mexico is a priority target. Strategic.

In the case of BBVA, to defend its leading position and, of course, the large profits it earns in the country, where it makes almost half of its profits, which in 2021 are estimated to total $5.2 billion.

In the case of Santander, to grow in the country, strengthen itself and give impetus to its mega-project of a Brazil-Mexico-US axis.

The American Citi announced that it is leaving the retail banking business in Mexico, grouped in Banamex. This is no small matter: more than 1,200 branches, more than 31,000 employees, more than 35 billion dollars, i.e. a systemic entity.

REUTERS/SERGIO PÉREZ  -   La presidenta del Banco Santander, Ana Patricia Botín

It does not seem to be entirely a problem of lack of confidence in the country or fear of leftist drift. Citi, which since 2016 has been selling its retail banking business in Argentina, Brazil and Colombia, wants to focus in Latam on what it does best: investment banking. The proceeds from the sale of Banamex will not be bad for it either: valuations range from $4.5 billion to $15 billion.

Why Santander is a favourite. For Santander, Mexico is a strategic country and analysts consider it to be the main candidate to win the deal. At the moment, it controls a market share in Mexico of 13.3%, which contributes 10% of the group's profits. With Banamex, Ana Botín's bank would control, if it were to win, around 23% of the Mexican market and would be on an equal footing with the leader, BBVA, which controls 24%.

But in addition to its position of dominance, Santander wants to reinforce its dream of creating a Brazil-Mexico-US axis to dominate the world banking podium. Several operations carried out in recent years demonstrate this idea. In Brazil, after heavy investment, Santander already earns between a third and a quarter of its profits as a group. In Mexico, last year it carried out a takeover bid to take full control of its Mexican subsidiary, where it already holds 96.1% of the capital.

It is also worth remembering that, in 2016, Santander took over Citi's retail business in Argentina.

In the US, Santander is only waiting for the necessary authorisations to increase its stake in Santander Consumer USA, a subsidiary where it has 5 million customers and manages $150 billion in assets.

Is BBVA ruling itself out of the running? So far, it seems so. The big dominator of the Mexican banking market, with a market share of 25%, wants to maintain its privileged position, but it also has several fronts to deal with.

The first is that adding Banamex, if it were to bid for the bank, would give it a dominant position of close to 36% of the market, which would clash with the Mexican competition authorities.

The second is that the bank has been undergoing a strong digitalisation process for years, driven by its former chairman, Francisco González, who since 2008 has been investing between $675 million and $900 million annually in the process, with the consequent reduction in costs and improvement in efficiency, a process that is the reverse of what the purchase of Banamex would entail.

Lastly, BBVA wants to focus on fixing its presence in Turkey, a market it considers a priority because of its potential, but which in recent years has only given it headaches, among other things because Erdogan's regime has shamelessly favoured public banks over private banks such as Garanti.

REUTERS/EDGARD GARRIDO - El presidente de México, Andrés Manuel López Obrador

What if AMLO has a favourite? Predictably, Mexican political power, personified by leftist Andrés Manuel López Obrador (AMLO), has already made its voice heard loud and clear. AMLO, in the midst of recovering COVID, said he would like to see Citi Mexicanised.

As part of the plan, some warn that if Santander takes over Banamex, the big Spanish bank will control half of the Mexican financial system, something that not everyone is happy about. That is why, although he sent a reassuring message, clarifying that foreigners can participate in the process, AMLO put the ball in the court of Mexican businessmen by naming Ricardo Salinas Pliego, Carlos Slim, Carlos Hank González and José Javier Garza Calderón as investors with sufficient resources to win the bidding.

This explains why some analysts (non-financial, of course) point to Banco Azteca as one of the favourites to take over Banamex, since the bank's owner, Ricardo Salinas, seems to have special sympathy from AMLO. Will this be enough of an option? AMLO could disguise this interventionist move as an attempt for Mexican businessmen (the like-minded, of course) to recover a very important part of the banking business. In addition to entities such as Banorte and Scotiabank, we should also take into account a firm such as Inbursa, whose owner is the tycoon Carlos Slim and in which CriteriaCaixa has a 9.1% stake. The stakes are high.

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