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Citigroup's Mexican Adventure


Just before Mother's Day last month, as many as 20,000 Mexicans living in Los Angeles, Chicago, and Houston received catalogs from the Mexican bank Banamex with an innovative offer. Instead of wiring home small sums of money so Mama could make installment payments on a new refrigerator or stove, they could order one from the catalog, charge it to their U.S. credit card, and have it delivered to her in Mexico. The cardholder could pay over time for less than 13% annually, far below the 100% to 130% that appliance retailers charge back in Mexico. Only a handful of consumers responded, but Banamex and Citigroup are patient. "We're testing the waters to see what works and what doesn't," says Luis Pe?a, the new director for Hispanic markets at Citigroup (C), Banamex's parent.

The offer was a modest--and educational--foray into the Hispanic banking market in the U.S. for financial giant Citigroup. A year ago it paid $12.5 billion to buy Mexico's largest financial group, Banacci, and its second-largest bank, Banamex. While Hispanic banking stateside may prove a tough nut to crack, the Banamex purchase is looking smart. Citigroup kept the Banamex name and most of its local managers, and so far the bold purchase--some critics thought Citigroup overpaid--has been rewarded handsomely: Banamex figures to contribute $1 billion to Citi's bottom line this year. "The synergies are considerably better than we had expected," says Banamex Chief Executive Manuel Medina Mora. "So far, we're doing very well."

After swiftly integrating its Citibank operation in Mexico with Banamex--laying off 3,600 employees in the process--Citigroup decided the first order of business was to go after the potentially lucrative Hispanic market in the U.S. There are some 35 million Hispanics in the U.S., and 65% are of Mexican descent. Their estimated $500 billion in annual buying power has caught the attention of Bank of America, Wells Fargo & Co., and others, but only Citigroup has major operations in the U.S. and Mexico. And on May 21, Citigroup extended its Hispanic reach by offering $5.8 billion for San Francisco-based Golden State Bancorp Inc., which has 353 branches in California and Nevada, where a third of all U.S. Hispanics live. "We want to be the financial-services provider of choice for all Hispanics in the U.S. and for Mexicans on either side of the border," says Pe?a.

But winning over U.S. Hispanics won't be easy. Marketers must take into account language differences and varying economic levels. Recent arrivals, who are big customers of wire-transfer services, must be approached in Spanish. Acculturated migrants respond to bilingual advertising for services such as student loans aimed at minorities. Assimilated immigrants prefer English-language sales pitches and are potential customers for mortgages or business loans. "A lot of financial institutions talk about Hispanic marketing, but I don't think many are making money at it," says Philip J. Guarco, senior banking analyst for Latin America at Moody's Investors Service. "If anybody has the pieces in place to do it, it's Citigroup."

Pe?a's first goal is to grab a bigger share of the nearly $10 billion that Mexican immigrants send home each year. In May, Banamex cut its fee to wire up to $1,000 to Mexico from Citibank or affiliated branches by three-fourths, to $10, but not before several rivals had beaten it to the punch.

Citigroup figures to have better luck peddling credit cards to the Hispanic community: It launched a Banamex USA card in April to capitalize on Banamex's strong recognition among Mexicans in the U.S. Immigrants eager to establish a credit history can get cards with secured lines of credit backed by their bank deposits for a year before they are converted to regular cards. Banamex also will be pushing credit cards in Mexico, thanks to the strong growth in consumer spending. "That gives us the opportunity to roll out credit cards in a big way and get into the business that Citi has been traditionally very good at--consumer finance," says Edward T. Walsh, who heads Citi's new emerging markets consumer unit.

Meanwhile, Banamex's core business is once again churning out profits. Profits took a major hit initially as Citi spent an estimated $1 billion to clean up problem loans, sell an Argentine subsidiary at a big loss, and buy out its pension-fund partner. But in the first quarter of this year, Banamex contributed $280 million in earnings--around 7% of Citigroup's total profit. The main reason: Banamex had cut annual costs by $350 million--30% more than planned.

Citigroup's decision to keep the Banamex brand name and its Mexican managers also showed savvy. Only three of the top executives are Citigroup envoys--the treasurer, the chief financial officer, and the head of corporate banking. "It was a very intelligent move," says Moody's Guarco. "The Citi brand name was very high in the corporate wholesale business, but within Mexico's retail banking sector, Banamex had a whole lot more brand equity."

So far, so good. "It's a long-term investment and a bet on continuing economic convergence between the U.S. and Mexico," says Guarco. New credit-card holders in the U.S. ordering fridges for Mama back in Mexico will hasten that convergence. By Geri Smith in Mexico City, with Heather Timmons in New York


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