December 1, 2006

Banks Leap Across Borders

Given the green light by the Federal Reserve Board, a Mexican bank has finalized its majority-ownership purchase of the Texas-based Inter National Bank (INB). Luis Pena Kegel, director general of the Banorte Financial Group, said the INB will use its base from the city of McAllen on the Texas-Mexico border to expand into other regions of the United States.

“With this operation, Banorte has the intention of getting closer to families and businesses on both sides of the border with innovative financial products that nobody else is offering,” Pena said in an interview with the Mexico City daily La Jornada.

Transferring remittances from the United States to Mexico for no charge is one big enticement that the INB will employ to attract new customers. A booming business, remittances in Mexico could reach an overall sum of $24-25 billion dollars in 2006, an increase of more than 20 percent increase over last year’s amount. Figures from the central Bank of Mexico estimate that total remittances during the 6-year presidency of Vicente Fox, which concludes December 1 of this year, will reach almost $93 billion dollars.

According to Pena, binational mortgages will be another product offered by the INB. While providing financing to US residents interested in purchasing real estate in Mexico, the INB will also assist Mexican residents seeking to purchase a home in the United States, Pena explained.

Possessing deposits of more than $1 billion dollars, the INB counts 18 branches in Texas’ Lower Rio Grande Valley and in El Paso. The firm employs 305 people. Banorte paid $259 million dollars for a 70 percent ownership stake in Inter National, and could buy out the remaining shares in the future.

Banorte is associated with prominent Monterrery businessman Roberto Gonzalez Barrera, whose fortunes as the head of the Grupo Maseca milling and tortilla company soared during the administration of former President Carlos Salinas Gortari (1988-94). Enjoying ties to the Salinas family, Mexico’s so-called “Tortilla King” oversaw the successful expansion of Grupo Maseca into the US, Costa Rica and other nations.

In a cultural and culinary milestone, Grupo Maseca inaugurated China’s first tortilla plant in the city of Shanghai last September.

In 1992, investors headed by Gonzalez purchased Banorte as part of the Salinas administra-tion’s bank privatization program. Currently capitalized with $7.85 billion dollars, Banorte has 1,000 branches and 3,050 automatic teller machines in Mexico.

Even as Banorte is expanding into the United States market, US and Spanish firms are stepping up their banking activities in Mexico. In one of the final decisions of the outgoing Fox administration, Wal-Mart and Prudential Financial were among 5 new companies authorized to operate in the banking sector last week. Manuel Somoza Alonso, a former chief of the Mexico City stock market, has been named as the individual likely to head Prudential’s new Mexico operation.

Together with two additional banks awaiting final approval, the new banks will join a roster of 13 new financial services businesses given official authorization by the Mexican federal government during the last year of Vicente Fox’s presidency. Also among the latest round of banks authorized to operate is Bancoppel, a company connected to the rapidly-expanding Coppel department store chain of the Sinaloa businessman Enrique Coppel Luken.

Finding new niches, the new banks are expected to offer credit opportunities for lower and middle-income consumers who are often hard-pressed to purchase household goods and other items. “They will orient their business to segments of the population that have not been traditionally served by banks,” said the federal Ministry of Budget and Taxation in a statement.

Flowing in cash, some Mexican banks are aggressively enrolling new clients-even without customers’ knowledge.

Controversy recently erupted in Tijuana after students at the Autonomous University of Baja California were assigned debit cards issued by the Spanish-owned Santander Serfin bank that were meant to be used as university identification cards. “(University officials) gave out confidential information to Santander Serfin, charged Mariana Cota of the newly-formed University Student Movement. “Our names and personal data are on a debit card that we did not solicit.”

Once languishing in the pits, Mexico’s banking sector has made an impressive comeback during the Fox administration.

Recently given a favorable report by the Standard and Poor’s financial rating service, Mexican banks are estimated to have raked in more than $15 billion dollars in earnings during the Fox administration, thus registering a 541 percent increase over their earnings obtained during the previous Zedillo administration, when the Mexican government initiated a costly public bail-out of institutions that were on the verge of collapse.

Ultimately, most Mexican banks were peddled off to foreign investors, who now control about 90 percent of the stock in the country’s financial institutions. Investors can expect about a 20 percent rate of return from Mexican banks, according to the Bank of Mexico.

Analysts credit much of the recent banking boom and profit surge to the widespread reintroduction of consumer credit, a growing market which earns banks about three times the rate of interest charged in the United States and Spain. Bank of Mexico statistics report that consumer credit increased 47 percent during the first months of 2006, while credit destined for productive activities grew only by 11 percent in the same period. Service commissions, considered among the highest in the world, and tax breaks also serve to fatten a cash cow.

Some analysts warn that the entry into the banking business of companies like Wal-Mart, which don’t specialize in banking, is beginning to resemble the privatization “pinata,” when individuals with little banking experience were given control of financial institutions that soon required government intervention. On the other hand, the National Banking and Securities Commission (CNBV), Mexico’s federal agency in charge of monitoring banks, has assured investors that it will scrupulously safeguard their money, and fulfill its oversight function in relation to the new banks. The CNBV vows that it will meticulously review the financial health of the new companies competing to handle the public’s money.

Frontera NorteSur (FNS): on-line, U.S.-Mexico border news Center for Latin American and Border Studies New Mexico State University Las Cruces, New Mexico.

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