AMLO Vows No Change in Banking Laws, Pivoting After Market Slump

(Bloomberg) -- Mexico’s incoming president moved to quell a rebellion among investors worried about state interference in the economy, assuring them he had no plans to change banking laws. Stocks and the currency reversed the bulk of their losses.

Andres Manuel Lopez Obrador told reporters Friday afternoon that he’s against a proposal unveiled by the Senate majority leader and member of his party that would compel banks to cut the fees they charge customers. Analysts saw the bill as a sign that the left-wing president could pursue anti-business measures, and traders reacted by sending the peso and stocks into a tailspin.

The peso gained 0.4 percent to 20.1188 per dollar as of 2:14 p.m. in Mexico City after earlier falling as much as 1.1 percent. The benchmark stock index traded 0.3 percent lower after sinking more than 3 percent.

AMLO Vows No Change in Banking Laws, Pivoting After Market Slump

While Lopez Obrador’s words provided some immediate comfort to investors, Mexican assets are still down significantly since the incoming president sparked concerns almost two weeks ago by announcing that he planned to cancel a $13 billion airport project. Before then, traders seemed to have made peace with Lopez Obrador as the firebrand populist tried to show his economic bona fides by meeting with executives and making reassuring statements about his desire for a robust business environment in Mexico.

“Since yesterday, the impact of the bank commissions on the peso and rates was too much,” Claudia Ceja, a Banco Bilbao Vizcaya Argentaria analyst based in Mexico City, said in an interview. “Now the rebound is equally aggressive.”

Lopez Obrador pledged he wouldn’t move to change banking laws for at least three years after he takes over in January. When asked whether he would veto the banking-fee bill if it was passed by lawmakers, he demurred, saying “let’s not get ahead of ourselves.”

Mexican banks, the hardest hit after news of the proposed bill emerged, were not surprisingly the biggest winners after Lopez Obrador seemed to shoot down the idea. Banco del Bajio surged 6.3 percent to 41.53 pesos after it lost 7 percent Thursday. Grupo Financiero Inbursa added 6.8 percent after Thursday’s 10 percent loss, while Grupo Financiero Banorte pared losses to 3.6 percent Friday after being down more than 12 percent at one point.

The proposal from lawmaker Ricardo Monreal would limit fees charged by banks for things like cash withdrawals and balance consultations, which are higher in Mexico than in much of the rest of the world. The senator said early Friday morning -- before Lopez Obrador held his news conference -- that lawmakers are open to listening to the banking sector before the document is completed, but that the core of the legislation would stay.

Investors are still pretty spooked amid all the turmoil, according to Michael Roche, a fixed income strategist at Seaport Global Holdings in New York.

“Even if the reversal is judged positive by the market, the fact that there was a reversal has to raise the risk premium on Mexican assets,” Roche said.

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