Citi and Banamex | News from Mexico

“The company’s social responsibility is to increase its profits.”

Milton Friedman.

There is only one reason for a profitable company to sell productive assets: To achieve a better return. That’s what Citigroup is doing. It is not that your retail business in Mexico is not profitable, but it is less so than others.

Citigroup was created in 1998 with the merger of Citibank (City Bank of New York) and Travelers Group chaired by Sanford Weill, who remained in charge of the conglomerate. The merger required a change in US law that restricted banking business. Citigroup became the largest financial group in the world. Sandy Weill thought he could fill every financial business slot on the planet. The purchase of Grupo Financiero Banamex-Accival de México in 2001, for 12.5 billion dollars in cash and shares, was the product of this vision.

In the financial business, however, size is not the only thing that matters. The intention to cover all market segments has not yielded optimal benefits to Citigroup. Bank of America surpassed it in market value in 2006 (The Economic Times, India). In 2021 Citigroup was ranked 11th in the world (SPGlobal.com).

Citigroup shares had the worst stock performance among major banks in 2021. Not only did they not register an increase, but they are at the same price as five years ago (Financial Times). In contrast, the KBW Bank Index, which measures the shares of the main international banks, had an increase of 34% in the year (Market Watch).

Jane Fraser, CEO of Citigroup since February 2021, is looking to focus the corporation on its most profitable activities. Last year it announced the sale of retail operations in 13 countries in Asia and Eastern Europe that were making little or no money. The goal was to raise earnings per share from 6.9% in 2020 to 12%. Citigroup is the only one of the six big Wall Street banks whose shares trade below book value (FT, Lexington).

Until now, Fraser had not announced that he would touch Citibanamex, which has Citigroup’s largest retail operation outside the United States. One reason is that this operation is profitable, although less so than corporate or wealth banking. The announcement of this January 11, however, is consistent with the strategy of concentrating on large businesses outside the United States.

Yesterday’s La Jornada headline, “Citibanamex for sale, despite juicy profits,” reveals a lack of knowledge of the banking business. If Citibanamex’s profits were so juicy, the bank wouldn’t be selling its retail banking. The folly of the populist proposals in Congress, such as limiting commissions or interest rates, is also evident; Politicians must not kill the goose that lays the golden eggs.

Citibanamex currently represents 12% of banking in Mexico. It is far from the 25% that it once had. The competition is increasing. The new technology companies, the fintechs, are beginning to take a part of the retail market. Other banks, on the other hand, have more capacity to operate in the mass market.

The competition is doing its job. Citigroup, which at the time opted to be the largest bank in the world participating in all markets, today understands that it is in its best interest to specialize in the businesses in which it is best. The big question now is who will stay with Banamex.

CIDE

The left demanded greater autonomy from educational centers when it was in opposition, but power has changed it. Conacyt has presented a reform to the CIDE statutes to eliminate the power of teachers to formalize the appointment of the general director. He wants more centralization.

Sergio Sarmiento

Twitter: @SergioSarmiento

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