Banorte Says All Funding Options on Table if it Buys Citibanamex

(Bloomberg) -- Grupo Financiero Banorte needs to see the details on Citigroup Inc.’s plans to sell its Mexican consumer banking operations to determine if buying it will be profitable for its shareholders, the bank’s chairman said on Thursday.

Carlos Hank Gonzalez told Bloomberg in an interview that Banorte still has to learn exactly which parts of the bank Citi will be putting up for sale. All funding options are on the table, Banorte Chief Executive Officer Marcos Ramirez said in the same interview, when asked if the bank would rely on stock or debt sales options to fund the purchase.

“For us to define that this is a transaction that interests us, without a doubt, it has to be a transaction that generates profitability for our investors,” Hank said on the sidelines of Mexico’s annual banking convention in Acapulco.

Banorte, one of the country’s top four banks behind Banco Bilbao Vizcaya Argentaria SA and the second biggest by total loans, has been seen as the top contender among potential bidders to buy Citi’s Banamex, or Banco Nacional de Mexico, which is valued at between $4 billion and $8 billion. Adding Banamex would potentially catapult Banorte to around the same size as BBVA Mexico -- or even bigger.

Citi has said it will start the sale process in April, but it has yet to share information with potential bidders.

‘Extraordinary Opportunity’ 

Banorte’s stock price hit a record high last week, backed by expectations that rising benchmark interest rates will lift its profits. But the shares slipped back a bit earlier this week after it re-expressed its interest in Banamex, reminding investors they could be diluted by any follow-on stock sales to fund the purchase.

In a statement on Tuesday, Banorte called on ordinary Mexicans and businessmen to recover the Banco Nacional de Mexico and form a Mexican banking champion. Banorte said it would enable its branches to allow all Mexicans to participate, without a minimum investment, and join in a “national effort.” 

The statement echoed comments by President Andres Manuel Lopez Obrador, who said in January that he preferred Banamex to be bought by local investors. Banorte is the biggest bank still owned by Mexicans after a wave of foreign acquisitions of local banks that were devastated by the 1994-1995 “Tequila Crisis.” 

“This communication allows us to remind the general public, the investing public, that Banorte is a public institution, that any of us can buy a share and be able to be part of this growth story of Banorte, right now or in any transaction,” Hank said. “If it came to a deal, it would be an extraordinary opportunity for all Mexicans to be part of the transaction.”

A Banorte bid for Banamex could face regulatory obstacles, as the combination could be seen as eroding competition in the country’s already highly concentrated banking industry or create systemic risks by establishing a bank that’s too big to fail for Mexican regulators. 

However, Ramirez said there’s a strong current of thought that “it is better to have strong and large banks” than to have a system with smaller banks that is “pulverized.”

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