Spinning off Banamex

By Felix Salmon
October 19, 2009
Adam Thomson for getting the word "candescent" onto the front page of today's FT -- it's not a word we see nearly often enough. He uses the word in the context of the debate over Banamex, which, if various lawsuits go against Citigroup, could force the US bank to divest itself of its highly-profitable Mexican subsidiary.


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Well done to the FT’s Adam Thomson for getting the word “candescent” onto the front page of today’s FT — it’s not a word we see nearly often enough. He uses the word in the context of the debate over Banamex, which, if various lawsuits go against Citigroup, could force the US bank to divest itself of its highly-profitable Mexican subsidiary.

Thomson rightly calls Banamex “highly prized” — and it’s very much considered core to Citi’s operations, as opposed to a non-core holding which might get sold off. But in principle there’s no reason why Citi shouldn’t sell Banamex.

For one thing, Banamex is run as an almost completely independent operation from the rest of Citigroup: it’s the only part of the Citi empire to operate under a non-Citi name, and its managers have successfully resisted any attempts at integration ever since it was bought for $12.5 billion in 2001.

And for another thing, Banamex is one of only two non-US countries where Citi has a substantial retail presence. (The other is Poland, where Citi bought Handlowy in 2000.) Elsewhere, Citi has been happy to sell off its retail banks: it sold its German operations, for instance, to Credit Mutuel last year for $7.7 billion.

Selling off Banamex would help Citi concentrate on its core competency when it comes to retail banking, which is the high-end Citigold product. Yes, Banamex has lots of strengths elsewhere in the retail world, but that doesn’t scale globally, and if Citi were simply to spin off Banamex, making it a genuine Mexican company again, that would both raise much-needed cash and bring the bank’s Mexican operations in line with its operations elsewhere.

Owning Banamex made a certain amount of sense when Citi was in world-domination mode, but the opportunity cost of holding onto it is now enormous, given the $20 billion or so it would fetch in an IPO. It might be time for Citi to just let it go, even if the Mexican courts don’t force it to do so.

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