Analysts Praise Union of BBVA and Bancomer

All parties are winners in a decision by Mexican banking group Grupo Financiero Bancomer to embrace a merger bid by Spanish bank Banco Bilbao Vizcaya Argentaria over an unsolicited bid by Mexican group Banamex-Accival, financial analysts said Tuesday.

Bancomer said Monday that it had backed a sweetened offer by BBVA that would make it a leading player in Latin America.

“It is a good bid from the perspective of shareholders in that BBVA is paying $200 million more in cash, all of which will be straight equity for the same 32% stake initially proposed,” said Stephen Dreskin, an analyst at Donaldson, Lufkin & Jenrette Securities Corp. in New York. “It’s positive for the Mexican banking system in that it will promote competition.”

The move is an important step in the cleanup of Mexico’s battered banking system, which since a disastrous crash of the peso in 1994-95 has been trying to claw its way out of a colossal legacy of debt.

It also marks another triumph in what has been dubbed the “Spanish reconquest.” Spain’s Banco Santander Central Hispano won an auction for Mexico’s third-largest bank, Serfin, in May.

Mexico’s Finance Ministry said the Bancomer merger would help strengthen the country’s financial system, a prerequisite for the country’s “healthy development”.

“I think it leaves the system in a much healthier spot than it was,” said Laurence Madsen, an analyst at Warburg Dillon Read in New York. “We are at the tail end of a cleanup of the banking sector which has been dragging on for quite a bit now.”

The focus for banks since 1995 has been on asset quality and lack of capital over profitability, she said.

“We definitely have a banking sector going forward which will be a lot more competitive where there will only be room for banks that have a very clear vision and strategy and who have a very good cost structure,” Madsen said.

As a result of the fusion, 10,000 jobs would be cut, and there would be a 15% reduction in branches, Madsen said.

BBVA’s bid now amounts to $2.5 billion--including $1.4 billion in cash and $450 million in capital securities--compared with the $1.2 billion the Spanish bank had originally proposed in March.

Banamex-Accival, better known as Banacci, had offered to inject $2.4 billion in capital but would have had to borrow to raise part of the funds.

The deal would leave BBVA-Bancomer as the No.1 financial group in Mexico, with assets of $40 billion, or 30% of total deposits in Mexico, and a client base of more than 9 million people. BBVA had been a big player in Peru, Columbia and Venezuela, but not in Mexico.

Even the apparent loser, Banacci, was better off standing alone, analysts said.

“This is a blessing in disguise,” said Paul Warme, an analyst at ING Barings in New York. “As they are now, they can remain very competitive against the new Bancomer and new Santander.”