Mexico to Allow Foreigners to Buy Into Banks

President Carlos Salinas de Gortari, in a move aimed at returning Mexico’s banks to private hands and internationalizing the country’s financial services, proposed legislation Thursday that, among other things, would permit foreign investment in banks and stock brokerages.

The principal bill--a broad measure that would reverse the 1982 nationalization of banks--would allow up to 30% foreign ownership of any of the institutions. Under a separate bill, foreigners would be permitted for the first time to buy minority positions in brokerages.

Passage of the bills is practically assured, because Salinas’ party has a majority in both houses of Congress.

During the past eight years, Mexico has reduced tariffs and removed other barriers on imports but has continued to protect financial services. When insurance and other services were opened to foreigners late last year, brokerages were restricted to Mexican ownership.

Even before bank nationalization, foreigners could not own stock in Mexican banks. And foreign banks were--and will remain--prohibited from operating branches in Mexico, except for New York-based Citibank, which has special status. However, under the proposed law, foreign banks will be allowed to provide some services to foreign nationals.

Longtime observers of Mexican banking and finance expressed surprise that foreign investment is being allowed but at the same time noted that investment restrictions will sharply restrict the number of potential foreign buyers.

Besides limiting foreign ownership to 30%, the law also prevents any person or company--even Mexican--from owning more than 10% of a bank. And any investment over 5% would require special permission.

A U.S. banker, speaking on condition that his name not be used, said, “If we can’t control it, we don’t want it.”

In addition, he said, few U.S. banks are in a financial position to buy stock in Mexican banks. Problems with domestic U.S. real estate loans and lending to foreign governments--including Mexico--have left them with little to invest in ventures that their shareholders would be likely to consider risky.

One investment banker said the most likely foreign market for Mexican bank shares is the United States--and the most likely investment vehicle, American depositary receipts. ADRs, the means by which many Americans invest in foreign equities, trade like stock in the United States.

Mexican investors received the legislation enthusiastically.

The voteless bank shares that are traded on the Mexican stock exchange rebounded after a week of slippage on news that they can be converted into voting stock when the banks are privatized.

Former Mexican bankers are seemingly less concerned about restrictions on stock ownership than their foreign counterparts.

Since losing their banks in 1982, many have become investment bankers or have formed stock brokerages. They are said to be using their new skills to form investor groups to buy banks once privatization begins.