Citigroup’s Banamex Sale Gets a Stress Test with AMLO’s Demands

The sale of Citigroup’s retail banking operations would mark the biggest M&A deal in years in Mexico, a market that has been moribund for most of this century

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Bloomberg — There is, it would appear, only one real topic of conversation in Mexican banking circles nowadays: Citigroup’s (C) very public bid to sell off its local unit Banamex.

The sale of Citigroup’s retail banking operations would mark the biggest M&A deal in years in Mexico, a market that has been moribund for most of this century. Which explains why in meeting after meeting, in C-suites and corner cafes, the discussion invariably turned quickly to Banamex this past week.

Everyone has some hot tip on the latest twist or turn in the process, now eight months since the announcement, and everyone, regardless of whatever else they may think, agrees on one thing: Mexican President Andres Manuel Lopez Obrador is making it very difficult for Citigroup to fetch a price even vaguely close to the $12.5 billion it paid for the bank two decades ago.

Even though the government has no stake in the bank, which has lost market share in recent years, AMLO has publicly aired one demand after another of the would-be buyer, everything from a ban on layoffs to a preference for a local, rather than foreign, buyer. And a need to preserve a historically important art collection that Banamex owns.

These things may make sense from a public policy stand point -- at least to some -- but for the team of Citigroup bankers tasked with getting the highest possible price for the bank’s most valuable franchise in Latin America, the demands have become a headache.

Sure, the new owners can ignore AMLO’s pleas once they take over but they do so at their peril. His administration has shown a willingness to ratchet up pressure on companies that challenge it. The final purchase price, the bankers all concurred, will have to be discounted to take into account his demands.

Asked what would happen if the buyer didn’t heed the president’s calls, a government spokesman declined to comment. Press officials at Citigroup also declined to comment beyond the bank’s last public statement on the sale which came from CEO Jane Fraser back in mid-July. She made it sound like a final deal was still a long ways off.

“It’s still very early in this process, so when we have news for you, we will obviously convey that to you swiftly, but it’s early days,” Fraser said on a conference call. “It’s far too early in the process here to speculate on, but so far so good.”

This tone has struck the Mexican banking community as odd. In private, they wonder why there isn’t a greater sense of urgency to move the sale along. In fairness, there has been some progress. Multiple investors have now emerged as bidders for the bank: Grupo Financiero Banorte, Carlos Slim’s Grupo Financiero Inbursa, mining tycoon German Larrea and Grupo Financiero Mifel.

The rumor mill churns out new gossip every day on the sale, with one columnist pronouncing Slim’s bid dead, while another revived it the next day. A latest version has one of the world’s biggest asset managers potentially teaming up with Mifel.

During one of his daily press conferences that run more than two hours, AMLO also said he was presented proposals for the state to buy a 51% stake in Banamex and to run it with private partners. He said he didn’t seriously consider it.

Spain’s Banco Santander SA had been in the hunt too but its bid -- reportedly around $6 billion -- was rejected. That at least made AMLO happy. The one foreign bank that had expressed interest was out of the running.