Citigroup (C) has long been touting the opportunity offered in its Mexico operations, but the commentary coming through on Monday could indicate the need for caution.
The bank has promoted the idea of continually strong growth in the region, reportedly outpacing its U.S. consumer business. The performance prompted management to continue to pump capital into the business reflecting its key growth factor for the bank overall.
"Our Mexico Consumer franchise with nearly $6 billion of revenues continued to grow with a favorable market backdrop, including record low unemployment and strong consumer confidence," CEO Michael Corbat said in December 2018.
He explained that the results realized in 2018 would allow the bank to bolster investments to cash in on the country's consumer banking appetite.
"As you would imagine, we're constantly looking at the client demand that's out there juxtaposed against returns and growth opportunities and re-calibrating and reallocating resources accordingly," Corbat said at the time. "When we put together the targets, it reflected where we thought we'd see the opportunity, so continued momentum out of Mexico, momentum out of Asia."
He added that he was uncertain of how the election of left-wing candidate Andrés Manuel López Obrador would affect banking operations in the country, given the new president only took office on Dec. 1. Corbat instead focused on the underlying economic strength of the country at the time and the positive implications stemming from the USMCA trade deal.
However, the more dovish outlook offered in December may have shifted since.
"Retail loan growth was muted in Mexico again this quarter driven by a slowdown in activity in our commercial banking franchise where client sentiment has become more cautious under the new administration," CFO Mark Mason said on Monday morning. "While Consumer confidence remains quite strong in Mexico this quarter, we have begun to see a slowdown in GDP growth and overall industry lending volumes. While a slowdown in GDP is not unusual in a post-election year, we're watching the economy closely."
The reported slowdown seen in Mexico comes amid "significant external and internal medium-term risks that may affect macroeconomic conditions, growth capacity and the process of price formation in the country," Alejandro Díaz de León, governor of the Bank of Mexico, warned just last week.
Diaz de Leon added that uncertainty about the country's internal politics, which is marred by corruption and lawlessness first and foremost, also includes concerns about Lopez Obrador's potentially less friendly policies for big multinational businesses like Citi.
Political Problem
Citi might have a unique problem on top of the macro factors as well, notably its hefty penalties for overdrafts and low balances that have raised the ire of many Mexicans.
According to Bloomberg, the New York-based bank charges $47 for a bounced check in Mexico. The minimum wage in Mexico is just over $5 a day, meaning that one bounced check could cost a customer nearly two week's work.
The charges levied by Citi as well as other European banks were also noted by Mexican lawmakers as being higher than those charged in the comparatively wealthy home nations of each bank.
The high fines prompted considerations of fee-restrictive legislation in November 2018, which led to declines in the share price of banks operating in the country. However, this motion was struck down earlier this year by Lopez Obrador, suggesting an openness to working with banks like Citi on the issue.
In fact, Lopez Obrador recently met with Citi CEO Michael Corbat to discuss how the bank can better the country's financial services sector.
"We are focused on investing in our franchise with a history of 135 years to bring together the best of Mexico and the best in the world. We are proud to be recognized as the number one bank in Mexico, leading the market in issuing cards, and being named the best currency and capital market provider," Corbat was quoted as saying following the meeting. "We have been 135 years in Mexico and we have confidence in their future."
For the sake of a long-term investment, the future of Mexico will be one to watch for Citi shareholders. Unfortunately, there are more questions than answers surrounding the regional segment at present.
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