Citigroup cancels unit sale to Mexico, will follow IPO instead of Reuters

© Reuters. A Banamex bank logo is seen at a branch in Mexico City, Mexico, November 17, 2017. REUTERS/Henry Romero

Written by Tatiana Butzer, Saeed Azhar, and Isabel Woodford

NEW YORK/LONDON (Reuters) – Citigroup has canceled the sale of its Mexican consumer unit, Banamex, and will instead pursue an initial public offering, the bank said on Wednesday.

The bank’s shares fell more than 3% in early trading.

The Mexican group, Grupo Mexico, was in talks to buy the unit. In mid-May, amid speculation that the deal was in its final stages, Mexican President López Obrador said in a press conference that “there is no problem” with Grupo Mexico buying the company.

But Grupo Mexico said a government decree published days later ordered the “temporary” takeover of a railway controlled by Grupo Mexico, spooking investors and making talks between the government and the company “difficult”.

Shares in Grupo Mexico rose more than 6% after Citi’s announcement.

Mark Mason, Citi’s chief financial officer, said the decision “allows us to resume a modest level of share buybacks this quarter.”

Share buybacks may encourage investors, said Christopher Marinac, director of research at Janney Montgomery Scott.

“They freed up a little bit of capital because that deal that would allow them to buy back didn’t happen,” Marinac said. “And I think in the big picture, doing some buybacks was important.”

CEO says Citi ‘only focused on IPO’

Citi announced plans to offload the unit more than a year ago as part of a strategic overhaul by CEO Jane Fraser. It now expects the IPO to be completed in 2025.

“After careful consideration, we have finalized the optimal path to maximize Banamex value for our shareholders and further our goal to streamline our company is to shift from a dual-track approach to focusing solely on the company’s initial public offering.” Citigroup (NYSE: NYSE) CEO Jane Fraser said in a statement.

Recent complications in the sale influenced the decision, including demands from the Mexican government and other factors, said a person familiar with the matter, who declined to be identified because the discussions were private.

Banamex was acquired for $12.5 billion in 2001, while recent negotiations have valued it at around $7 billion.

German billionaire Lara conglomerate Grupo Mexico has taken the lead over Mexican Banca Mifel as the front runner for a potential sale.

Citigroup first announced in January 2022 that it would exit Mexico, ending its 20-year retail presence in the country, and pushing forward an extended bidding process.

Aside from the potential weakness of business, Citi also faced restrictions placed on any deal by the Mexican president, including a ban on sweeping layoffs.

In February, Citigroup CEO Jane Fraser met with Lopez Obrador. The meeting came amid the bank’s attempt to complete the sale of its local unit.

Since announcing its exit from the consumer business in 14 markets in Asia, Europe, the Middle East and Mexico, Citi has completed sales in seven markets, including Australia, Bahrain, India, Malaysia, the Philippines, Thailand and Vietnam. It’s also winding down its consumer business in China and Korea, and its overall business in Russia.

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