Time For Citigroup To Sell Mexico

Mar. 23, 2016 3:23 PM ETCitigroup Inc. (C)BCS46 Comments
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IP Banking Research


  • Citigroup should sell Banamex Mexico.
  • A U.S. G-SIB bank is not the natural owner of a Mexican bank.
  • This will unlock substantial shareholder value with minimal damage to the overall franchise.
  • In this article, I will make a compelling argument why Citi should sell Mexico.

Citigroup (NYSE:C) CEO Michael Corbat has vehemently denied in the past that his company has any intentions of selling Banamex Mexico. I think it is high time for Citi's board and CEO to reconsider this position.

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Citi is not the natural owner of the Mexican franchise

Citi is designated as a U.S. G-SIB and as such is subject to substantial regulatory burdens that do not apply to smaller, less complex banks. As such, it must hold higher capital, leverage and liquidity ratios and is subject to more rigorous stress tests and restrictions on its capital distributions.

As such, comparatively to its Mexican peers - the returns on the Mexican consumer businesses are diluted by Citi's G-SIB status.

This is perhaps best explained by looking at a recent presentation by Barclays (BCS) CEO James Staley:

As can be seen from above slide - Barclays Africa delivers strong ROE levels from a country view; however, when translated to BCS group results, reported ROE is diluted by a staggering 8.3%. Barclays management, of course, only disclosed this slide when it announced the intention to sell the Africa business.

Similarly in Citi's Mexico case - a local/regional owner will not be burdened by G-SIB capital buffers and other regulatory requirements. Simply put, Citi Mexico consumer business should be reporting higher ROE and valued much higher if held by a different owner.

But what about synergies of the global consumer banks?

Retail/Consumer banking businesses are largely managed locally and the synergies are somewhat limited (primarily technology sharing and some product development costs). As such, the term a "global consumer bank" is a misnomer in my view - this is in stark contrast, of course, to a global corporate business (which clearly is a globally-managed business).

The evidence also confirms this - considering Citi's LATAM rather

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Disclosure: I am/we are long C, BCS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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