Citigroup is nearing the sale of its Mexican retail bank in a deal that could value it at up to $8bn despite government interference scaring off potential bidders and driving down the price of the unit.
Billionaire Germán Larrea, who owns Mexico’s largest mining company Grupo México, is in exclusive talks to purchase Banamex, according to three people familiar with the matter.
Larrea’s offer is likely to value Banamex at between $6bn and $8bn, depending on how the deal is structured, the people said, below the $10bn or more predicted by some of the more bullish analysts. In January 2022, Bank of America analysts suggested that the “franchise could be worth US$12.5bn-$15.5bn”.
The same people warned that negotiations, while advanced, were ongoing and there was no guarantee a deal would be agreed. Another bid by Mexican bank Banca Mifel with backing from private equity fund Apollo also reached the later stages of negotiations but Citi chose to continue with Larrea, they added.
Two of the people with direct knowledge said Grupo México and Citi were discussing the US bank holding on to a stake in Banamex until it could later sell it on in an initial public offering. Bloomberg first reported the possibility.
“We are in an active dialogue and continue to pursue a dual process that includes both the sale of the consumer business, as well as potential for an IPO. We are pleased with our progress and remain committed to pursuing a path that maximises value for our shareholders,” said Citi.
Grupo México and Apollo declined to comment.
Citi bought Banamex in 2001 when it was Mexico’s second-largest bank with a long prestigious history. However, in the two decades since, Banamex has tumbled to fourth place, with insiders blaming poor decision-making around operations and stricter US regulatory requirements.
Banamex was put up for sale in January of 2022, after Citi initially said it might keep the bank.
The move to exit — but keep its institutional banking business — is part of chief executive Jane Fraser’s broad retreat from international retail banking which will see Citi leave Mexico and 13 other markets across Asia and Europe.
Despite holding private talks with rivals Santander and Banorte beforehand, Citi decided to pursue a public sale, two people said. Both banks declined to comment.
Interventions by President Andrés Manuel López Obrador and internal problems in the Mexico unit made Spain’s Santander and local lender Banorte re-evaluate the cost of the deal, according to two people directly involved in negotiations. Both banks are now out of the process.
People with knowledge of the deal said buyers also found Banamex had relatively high labour and pension costs, outdated IT systems and outstanding lawsuits involving problematic loans. “We ran the business into the ground,” said one senior Citi banker. “It was a much better one when we bought it.”
Days after the announcement that Citi was exploring a sale, López Obrador made clear he preferred a Mexican buyer for the nearly 140-year-old bank.
The president has made attacking foreign companies a part of his political strategy, accusing them of abusing Mexico and its people.
In July he said the buyers could not fire workers, undermining the logic for a purchase for banks relying on finding cost savings through job cuts, said people with knowledge of the matter.
“There are still — I understand — two or three interested parties in buying Banamex . . . the conditions have been accepted,” López Obrador said in November, during one of his morning news conferences.
“The female president of Citigroup’s board is an intelligent woman who has a lot of respect for Mexico,” he said in another.
On Citi’s latest earnings call in January, one analyst said investors had expected an announcement on the Banamex sale by now.
Wells Fargo analyst Mike Mayo said the possible $6bn to $8bn sale price was not going to get investors excited, but that quick approval of any deal from regulators was valuable.
“Citi probably would have received twice the amount that it’s getting had it sold the business earlier,” he said. “Strategically, managerially, operationally and culturally, Banamex has been a failure for Citigroup.”