BofA to Buy Stake in Mexican Bank
Bank of America Corp. said Wednesday that it will pay $1.6 billion to buy 25% of Mexico’s third-biggest bank from Santander Central Hispano, following rival Citigroup Inc. into the fastest-growing banking market in North America.
The investment in Grupo Financiero Santander Serfin is Chief Executive Ken Lewis’ largest since taking over the No. 3 U.S. bank and is critical to a strategy of opening more accounts and making more loans to 36 million U.S. Latinos, some investors said. The group’s spending power is expected to jump 60% to $926 billion by 2007.
In Mexico, where less than a quarter of households have a bank account, U.S. trade ties and low interest rates are expected to help the economy grow by 3% next year. That kind of growth has lured international banks, which control about 80% of Mexican banking assets.
Citigroup in 2001 bought Grupo Financiero Banamex Accival, the country’s second-largest bank, for $12.3 billion. HSBC Holdings, Britain’s biggest bank, in August spent $1.4 billion to buy Grupo Financiero Bital.
Jose Angel Montano, an analyst at Grupo Financiero BBVA Bancomer, sees the number of Mexican bank accounts doubling in the next five years. “There’s enough pie here for everyone,” he said.
U.S. banks also are using their Mexican holdings as anchors in an effort to compete in the money transfer business, dominated by First Data Corp.’s Western Union. Mexican-Americans send about $10 billion a year to relatives in Mexico, generating about $1 billion in fees, Lewis said. Bank of America will use Serfin’s 926 branches to capture more of those fees, he said.
Shares of Charlotte, N.C.-based Bank of America rose 12 cents to $69.50 on the New York Stock Exchange.
Bank of America will hold its stake for at least three years, the banks said. After that, it has the option to sell the stake back to Santander or to investors. It will name two directors to the bank.
Bank of America, with 4,200 U.S. branches, said about 75% of U.S. Latinos live in its service area. Most of the 550 branches it plans to build in the next three years will be in cities with fast-growing Latino populations, such as Los Angeles and Miami.
The bank has a three-pronged plan to target Latino customers in the U.S., Lewis said: selling stocks and other investments to people with established banking relationships; providing credit cards, mortgages and auto loans to people with basic bank accounts; and attracting people who don’t have bank accounts and typically don’t trust the banking system.
