Article

Citigroup makes major Mexican play

Analysts predict that ATMs will play a significant role in Citigroup's strategy following its acquisition of Banamex-Accival in Mexico.

October 25, 2001

For the past few years, the Latin American banking sector has produced at least one "deal of the year," a merger or acquisition with major ramifications for the industry.

Last year, Spanish banking group Santander Central Hispano (NYSE: STD)'s U.S. $3.6 billion bid in the privatization of state bank Banespa was the talk of the town. Banespa was considered the crown jewel of Brazilian state banks because it was located in the industrial hub of Sao Paulo, Brazil's most important state.

This year, competitors and analysts alike were stunned when U.S. financial services giant Citigroup (NYSE: C) announced its bold acquisition of one of Mexico's largest financial groups, Banamex-Accival (Banacci), worth a staggering U.S. $12.5 billion. The deal dwarfed Santander Central Hispano's aggressive move in Brazil many times over, making this year's top 10 list of the world's largest merger/acquisition deals.

Citigroup's sledgehammer push into Mexico's increasingly attractive retail banking market propels the U.S. group from a rather insignificant retail position in Mexico to the top spot - ahead of Santander Central Hispano and its archrival BBVA (NYSE: BBV), which held the leading position through its Mexican subsidiary BBVA Bancomer.

Leader of the pack

With 30.4 percent of Mexico's total banking assets, Citigroup will be the leader of the pack in Mexican banking. The stage is set for a fierce U.S.-Spanish banking battle. With 28.1 percent of total banking assets, BBVA Bancomer is the closest rival and will likely go to great lengths next year to outperform its U.S. competitor.

BBVA Bancomer expects to complete the integration process between its two merging banks, BBV Probursa and Bancomer, this month – two months ahead of schedule. By June 31, BBVA Bancomer had 3,930 ATMs and 2,159 branches. When the integration concludes and overlapping offices are eliminated, the number of branches will be around 1,900, a spokeswoman from BBVA Bancomer said.

The number of ATMs will also be reduced but "not at the same magnitude" because they can easily be relocated, she said, adding that the bank's main priority with its ATMs is to reduce costs and to clear crowded branches because the cost of a branch transaction is much higher than the cost of an ATM transaction.

ATMs also generate commission – or interchange – from non-clients who use the BBVA Bancomer ATMs, she said.

Wall Street analysts who track Citigroup and Banacci's merger process predict there will be little branch reduction and no ATM reduction due to the insignificant overlap between Citigroup's Mexican operations and Banacci's banking unit, Banco Banamex.

Citigroup has been in Mexico since 1929 doing investment, corporate and private banking. Its retail operations, however, were very small, represented by a local bank named Banco Confia that it bought from the Mexican government a couple of years ago.

Citigroup's banking unit in Mexico has only about 200 ATMs and the same number of branches, while Banamex boasts 3,700 ATMs and 1,350 branches.

Right now the two companies are analyzing the strengths and weaknesses of both groups' operations in Mexico to see what will remain and what will be subject to streamlining, a Banamex spokeswoman said. She said that it is to early to say how many ATMs and branches the new institution will end up with when the merger is completed in the first quarter of next year.

New York-based banking analysts from investment banks Bear Stearns and Santander Investment predict that no ATMs will be eliminated. Jason Mollin from Bear Stearns notes that ATMs are "mobile;" therefore, if some machines overlap, they can be moved to other locations.

ATMs will be top priority

Santander Investment's Patrick Boucher believes that ATMs will be a top priority for Citigroup in Mexico, as it will seek to transplant Citibank's "New York concept" to Mexico.

In New York, Citibank has gone to great lengths to persuade its clients to use ATMs instead of branches by presenting its customers with a large-scale ATM presence, Boucher pointed out.

Mexico has traditionally had a low branch and ATM penetration, and its ATM ratio per capita has been below that of many other Latin American countries. In addition, many of the Banamex branches are big, old-fashioned offices with few technological advancements, Boucher said.

Citibank will invest significantly over the next couple of years in refurbishing the Banamex branches and equip them with more technology in order to clear the crowded branches and cut costs, he added.

Citibank will be a tough competitor for its closest rivals in Mexico because of the technology and products it can introduce from its global franchise - and upgrading and expanding the ATM network will be one of the cornerstones of this aggressive strategy to dominate the Mexican banking arena, Boucher concluded.