Citigroup is unlikely to sell off its Mexican and Brazilian
subsidiaries in the near-term due to their stronger relative
growth prospects, analysts said this week as the beleaguered US
bank unveiled a new business model amid horrific quarterly
Citi saw net profits in 2008
from its Latin American operations drop 41% to $2.14bn compared
with $3.60bn the previous year, the bank reported in its latest
earnings release. Fourth quarter net income in Latin America
dropped to $6m from $939m in the fourth quarter of 2007.
However, these figures compare
relatively favourably with global losses of $18.72bn for 2008.
The firm made emerging markets history in 2001 by acquiring
Mexicos Banamex for $12.5bn, which was the countrys
largest-ever foreign investment. But the firm now plans to do a
U-turn from the legacy of former chief executive Sandy Weill
who championed the universal and global banking model.
It will create Citicorp to house
its main retail and commercial operations and Citi Holdings,
for non-core assets to be decimated over time.
Citicorp will include "regional
consumer and commercial banking franchises in the US, Asia,
Latin America, Central and Eastern Europe, and the Middle
East," the bank said.
Given the designation of
Citigroups Latin subsidiaries as "good banks", analysts
are optimistic. "Latin America has been performing relatively
well so I think the management can afford to have more of a
commitment," said Joe Scott, Citigroup bank analyst at Fitch in
However, one investor said if
share price and balance sheet pressure shows little sign of
abating then Banamex could be sold off for an estimated $8bn to
"I think everything is for
sale," he said. "The unthinkable has now become the thinkable
over the last couple of weeks."
Its global cards business in
Latin America reported a net profit in 2008 of $491m, down 60%
from $1.23bn in 2007 due to soaring credit costs. In addition,
Citigroups consumer banking business in the region posted
a 2008 net income of $300m, which was down by 55% from the year
earlier. However, its institutional client and wealth
management business were more resilient.
Despite the deterioration in
asset quality over the last two years, Banamex will remain a
strategically important subsidiary, said one Citigroup insider.
He said several years of quality earnings generation have
allowed for capital and loss reserve accumulation and that a
rebound in commodity prices at end-2009 would boost regional
growth. "The company is going to lop off non-core,
non-strategic assets. Latin America is safe. If you are
wounded, you dont lop off your left arm," he said.
In addition, Banco Citibank in
Brazil is under pressure given the declining credit of its
parent. With investor aversion to the banking industry,
potential buyers for either Banco Citibank or Banamex are
Some speculate that
Brazils Bradesco could make a bold bid for either
subsidiary to re-establish its franchise after the merger of
Banco Itau and Unibanco last year.
"Banco Citibank is a good
wholesale market player and I think Bradesco would pay a good
price for this while perhaps considering also pitting in a good
bid for the Mexican subsidiary," said a Brazilian banking
analyst in Sao Paulo.