Analysis: Mexico miner Grupo Mexico’s bid for Citigroup unit faces skepticism

Analysis: Mexico miner Grupo Mexico’s bid for Citigroup unit faces skepticism

MEXICO Metropolis, Feb 7 – Mining-targeted conglomerate Grupo Mexico (GMEXICOB.MX) is shifting closer to getting Citigroup Inc’s (C.N) Mexican shopper banking unit but faces an uphill route in promoting the offer to skeptical buyers.

Grupo Mexico, headed by billionaire German Larrea, is amid the very last candidates continue to standing in Citi’s calendar year-extended journey to sell its retail unit, known as Banamex, and has positioned a bid of up to $8 billion for it, Reuters described earlier this month.

But some analysts, shareholders and even Grupo Mexico executives have however to be convinced of the deal’s industrial logic.

A Grupo Mexico executive, who spoke on situation of anonymity, explained he was unconvinced by the determination to bid for Mexico’s No. 3 shopper financial institution by asset, adding that most administrators had been “surprised” by it.

He included that Larrea has told insiders that the team wanted to spend idle cash in Banamex, getting dominated out new investments in additional turbulent marketplaces like Peru, where by Grupo Mexico already controls Southern Copper Co (SCCO.N).

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A Grupo Mexico spokesperson declined comment on the directors’ stance toward the offer.

Citi struggled for many years to satisfy its objective of turning Banamex, beset by a legacy of underinvestment and a series of scandals, into a “state of the art lender.”

A buy aspect analyst at a local fund invested in Grupo Mexico, who spoke on ailment of anonymity, also reported that the organization would want to devote closely in Banamex, supplied that big banks are feeling the squeeze from more agile fintech businesses.

“The Mexican banking market place is incredibly aggressive … Every person is pumping capex into ‘going electronic.’ So I feel (Grupo Mexico) are having into a small business which needs (major) capex,” the analyst mentioned. “I can’t see where by the synergies are … It isn’t going to make sense.”

Citi and Grupo Mexico equally declined to remark.

The heads of Mexico’s banking association also declined to comment about the prospect of a miner using more than a bank when asked at a meeting in late January.

Market place WOBBLES

Banamex’s share of the personal loan current market has fallen to 9.3% from 22.5% when Citi bought it in 2001 and has constantly lagged its peers in return on assets, in accordance to regulator info.

Meanwhile, Larrea could encounter hurdles in chopping expenses at the formerly point out-owned bank supplied that Mexican President Andres Manuel Lopez Obrador has claimed he opposes sweeping layoffs.

The prospect that Grupo Mexico could be saddled with an pricey and unwieldy new subsidiary has spooked some analysts.

HSBC downgraded the corporation to “keep” from “acquire” when initial stories emerged in December that it was checking out the deal.

“We see no synergies or rationale for the acquisition,” the HSBC report claimed.

Jose Vazquez, a economic analyst at Grupo Bursatil Mexicano, agreed it was tough to see the shift positively.

“Incorporating a new arm which is absolutely various … with out a question, the market place would not get that perfectly,” he reported.

In truth, shares in Grupo Mexico – usually a strong performer this 12 months – fell 9% in mid-January subsequent media stories that Larrea was in pole posture for the offer.

The businessman is predicted to use the publicly traded conglomerate to finance the sale somewhat than doling out the hard cash himself.

In an earnings get in touch with very last 7 days, Grupo Mexico declined to remedy inquiries about the deal.

THE Shiny Side

Neighborhood buyers and analysts are not universally bearish on the possible offer, with some citing Larrea’s company savvy.

“I see it much more like a mogul shopping for a lender than a miner (acquiring a lender),” said Carlos Alberto Gonzalez, director of evaluation and inventory market place system at Monex. “A bank is often likely to enhance a portfolio.”

Larrea would not be the very first Mexican billionaire to include a lender portfolio to his empire. Carlos Slim, the country’s richest individual, made his fortune in telecoms but also counts Inbursa (GFINBURO.MX) financial institution amongst its holdings.

Meanwhile, analysts at Barclays argued late past calendar year that “a top quality retail banking organization (could) easy the volatility of the mining company.”

But banking institutions also have weighty technological and regulatory burdens, which could be a heavy elevate for Grupo Mexico given its inexperience in the financial space, claimed David Suarez, former chief fiscal officer at Banamex rival Banorte (GFNORTEO.MX), now vice president at an agricultural investment decision rely on.

“(Investors) are anxious about Grupo Mexico’s lack of practical experience to handle a financial institution of that measurement,” he instructed Reuters, emphasizing that Larrea will will need to bring in or retain “top rated notch” silver-haired groups across administration and the board.

“This is a national, retail financial institution, it is an completely unique scale (to a market, regional operation),” he stated.

Reporting by Isabel Woodford in Mexico City
Extra reporting by Diego Ore in Mexico Town
Editing by Christian Plumb and Matthew Lewis

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