Citigroup (NYSE:C) may be forced to sell its profitable and highly prized Mexican subsidiary Banamex [Banco Nacional de Mexico], as Mexico’s Supreme Court is set to begin investigating claims from a group of Mexican senators, that the U.S. government’s bailout of Citigroup is illegal and in breach of national law, according to a report in the Financial Times.
The Mexican law bans foreign governments from owning a stake in domestic banks. In March, the Mexican finance ministry passed a ruling stating that Banamex’s status was acceptable because the US government’s stake in the financial institution was transitory.
However, the senators, notes FT, say they want the Supreme Court to decide whether that ruling on Banco Nacional de Mexico — considered a symbol of Mexican nationalism — is constitutional.
If Citi is found to be in breech of the law, the loss of Banamex, which is the second largest bank in Mexico and resides in Citi’s “good bank,” known as Citicorp – with both commercial and retail banking operations, would be a severe blow for the New York-based-Citigroup. Banamex accounts for about 15% of Citi’s global profits and could be worth some $20 billion, the paper wrote.
“The Mexican ministry of finance has concluded that we are in compliance with Mexican law… In addition, our goal is to repay TARP as soon as possible, and that will put the entire issue to rest,” a Citi spokesperson told the Financial Times. Still, the fact remains if the decision goes against Citigroup it could force it to sell a stake of Banamex or even all of it.
The Financial Times notes also that other co.’s, including international insurer AIG (NYSE:AIG), Bank of America/Merrill (NYSE:BAC) and Bank of New York Mellon (NYSE:BK), could be also affected by this case since they have received U.S. funding and have operations in Mexico.
Shares of Citi rose 4 cents, or 0.87 percent, to $4.63 in early trade on the NYSE.