Citibank—The Confia Acquisition
in Mexico (A)
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In August of 1998 Citibank-Mexico President Julio de Quesadilla was soaking in his workplace on the Escapada de la Protestantismo in South america City reminiscing about the wild ride that his firm had taken during the prior four years. From the depths of the " Tequila Catastrophe, ” once Mexico's peso devalued simply by more than 100% at the end of 1994 for the final payment of $US 180 , 000, 000 to the Philippine government pertaining to the acquiring Banco Confia at the end of July 98, Citibank's Philippine business experienced swung via peak to trough and back about several events. He was wondering if anyone will believe the incredible series of events that he had merely experienced.
Citibank had controlled in Mexico for almost 60 to 70 years, since opening their first office in Mexico City that kicks off in august 1929. The bank had hardly ever had a large presence inside the retail sector, being limited by Mexican rules since the early on 1970s to the operation of your single office and to coping largely while using international sector. In spite of the legal limits, Citibank built up a large financial loan portfolio and feebased organization by the start of the 1980s. Most of the bank's organization was actually arranged in Nyc, where the capital base was sufficient to extend more than $US 3 billion of credit to a various Mexican authorities and corporate consumers. The office in Mexico Metropolis was in charge of dealing with regional clients and developing peso-based business, and providing the day-to-day relates to borrowers in cross-border, dollar-denominated loans.
The moment Mexico's government declared their inability to service the other commercial lender debt in August 1982, after which governments in Argentina, Brazil, and somewhere else followed go well with, Citibank was one of the hardest-hit lenders, having its loan collection in Latin America worth almost two times the value of shareholders' equity. Stand 1 depicts the degree of coverage of the key US loan providers in Latin America at the time.
Citibank in Mexico made a decision to ride out your storm, researching ways to generate payments on their government loans, negotiating debt-to-equity swaps to get other banks and companies, but essentially remaining dedicated to the Mexican market. The majority of US banking institutions, in fact , closed their Mexican operations through the debt crisis of the eighties.
By the early 1990s, Mexico's government acquired restructured it is foreign debt with a Brady Plan arrangement and had joined GATT (General Agreement upon Tariffs and Trade), uniting to open our economy to foreign trade also to permit international firms increased operating liberty in Mexico. Citibank was well positioned to build their local organization, but still limited by Mexican banking law from growing into a part network or perhaps taking over a nearby bank. If the North American Totally free Trade Copyright © 2000 Thunderbird, The American Graduate School of International Administration. All privileges reserved. The case was made by Professor Robert Grosse for the purpose of classroom debate only, and never to indicate possibly effective or perhaps ineffective management.
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Agreement (NAFTA) began to function in January year 1994, US banking institutions were finally permitted to compete about more similar terms to Mexican, domestically owned banks. Citibank would not immediately jump to both build new branches or to buy an area bank.
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This turned into a very fortuitous decision when the Tequila Catastrophe hit on December twenty, 1994. Mexico's government devalued the influencia by 15% on that date, and stated an insurance policy of permitting the influencia to drift freely in the foreign exchange marketplace. An...