Banorte stands alone

Latin CEO: Executive Strategies for the Americas, Dec, 2001 by Daniel J. McCosh

Now that CEO Othon Ruiz has engineered the latest of a series of Mexican bank mergers, Banorte becomes the largest homegrown financial institution in the nation. With fewer players on the field, is consolidation in Mexico's banking sector finished?

OTHON RUIZ MONTEMAYOR SHOCKED analysts and investors alike this September when the Grupo Financiero Banorte CEO announced his company would buy Mexico's BanCrecer for US$174 million--far less than the bank's US$260 million book value.

The acquisition, coming fast on the heels of Citibank's announced' merger with Mexico's No. 2 financial group, Banacci-Bancomer, seemed to answer the question of whether No. 4 Banorte would go it alone or be swallowed up. But is bank consolidation in Mexico over? As far as Ruiz is concerned, it is ... for now.

During the last three years, Spanish financial giants Banco Bilbao Vizcaya Argentaria and Banco Santander Central Hispano have gobbled up the No. 1 and No. 3 Mexican banks--Bancomer and Banca Serfin, respectively With Citicorp firmly in the No. 2 spot once it finalizes its US$12.5 billion takeover of Banacci, the hierarchy of Mexican banking seems all but set (see Marketplace, pg. 50).

Still, however savvy it is at playing the M&A game, Banorte remains a tasty target for foreign acquirers. Aside from No. 5 Bital continuing its search for a global partner, the only other bank of significant size left in Mexico is Banco Atlantico, which Bital has made overtures to.

Banorte itself has little more to acquire within Mexico. Since coming on board as CEO in 1996, Ruiz has negotiated the acquisition of Banpais, in 1997, and picked up BanCrecer for less than half the rate Santander paid on its bid for Serfin (see sidebar). Speaking from his penthouse office overlooking Mexico City's stately Avenida Reforma, Ruiz says the Mexican banking landscape now has "fundamental definition."

"This doesn't mean that there will be no be further consolidation in the future--there may be," he says. "But I don't think this will happen for at least the next two years."

That's because the next two years herald a fundamental shift for Mexico's financial services industry. By 2003, the nation will begin implementing a form of deposit insurance not unlike that provided by the Federal Deposit Insurance Corp. (FDIC) in the US. During that year, the current blanket deposit insurance--which covers any amount on deposit--will be replaced by a limited liability system that will guarantee individual deposits up to US$3 million. By 2004, the amount covered will fall to about US$1.5 million, and by 2005 coverage will be capped at US$100,000.

"It is very important that in 2003, when the markets will strictly supervise us, that people do not talk about a Banorte in transition," says Ruiz. "Rather, they should see us as a [banking group] that is consolidated, and with its assimilation process complete."

Rolling Up Sleeves. Ruiz certainly has his work cut out for him. The task of reorganizing the "new" Banorte is a huge undertaking, though few would say Ruiz does not have the experience to tackle it. With almost 40 years working in the financial sector, the 58-year-old is no green player. Rather, the self-professed believer in return-on-equity as a competitive benchmark is an uncommonly open businessman in a sector that is notoriously cloaked in secrecy.

When he began at Banorte, Ruiz already had spent 30 years working for Valores Industrial SA (VISA)--the Mexican holding company that originally included beverage conglomerate Femsa--first as CEO and later as CEO. In 1995, he took a working sabbatical to serve as treasurer of the northern industrial state of Nuevo Leon. "I chose the leisurely year of 1995 for my sabbatical so that it would be a bit of a challenge," Ruiz jokes, referring to the mad scramble Mexico faced after a botched devaluation in late 1994 sent the economy into a tailspin and forced the government to restructure its debt.

Under Ruiz's direction, Banorte has morphed from a tiny, regional bank (No. 10 when Ruiz arrived in 1996) into the largest bank still majority-owned by its original Mexican shareholders. He credits this group of shareholders, led by Chairman Roberto Gonzalez Barrera, with Banorte's good fortunes. Gonzalez acquired the bank in 1993 with the money he amassed in the tortilla business (he is chairman of Grupo Maseca, Mexico's tortilla monolith, which also owns an 11 percent stake in Grupo Financiero Banorte). Since then, the chairman has consistently plowed profits back into the banking franchise.

Some industry insiders suggest that, with the rise of foreign-owned banks in Mexico, Gonzalez now covets the mantle of Mexico's reigning banking "Don"--"The one Mexican that businessmen would turn to [for money] instead of the Spaniards or the gringos," says one analyst, who requested anonymity. Others speculate that Banorte's acquisition of BanCrecer was meant to give the bank the critical mass to attract a foreign buyer--perhaps Inverlat-Scotiabank, whose Canada-based parent company may itself be an acquisition target.