Citigroup to Pursue IPO for Banamex as Sale Efforts Collapse

Citigroup to Pursue IPO for Banamex as Sale Efforts Collapse

Citigroup has announced its plans to pursue an initial public offering (IPO) for its Mexico business, Banamex, after a 16-month effort to find a buyer for the unit fell through. The separation is expected to be completed in the second half of 2024, with the IPO likely to follow in 2025. Although the listing destination has not been determined yet, there is a possibility of a dual listing in Mexico and the United States, according to a source familiar with the plans.

Citigroup’s decision to pivot towards an IPO for Banamex comes as part of CEO Jane Fraser’s efforts to streamline the bank’s operations and simplify its structure. Since assuming the role in March 2021, Fraser has been focused on overhauling the third-largest U.S. bank by assets. The sale or IPO of Banamex was initially announced in January 2022 as part of Citigroup’s plan to reduce its global footprint.

Despite generating interest from potential suitors, sales talks ultimately fell apart this week. Citigroup had been in discussions to sell a significant portion of Banamex to Grupo Mexico for approximately $7 billion. However, negotiations were complicated by demands from Mexico’s president to protect workers and the bank’s holdings of Mexican artwork in any transaction.

Citigroup acquired Banamex for $12.5 billion in 2001, establishing itself as the only major U.S. lender with a significant presence in Mexico. Over time, Banamex lost market share to locally owned competitors, similar to other retail units of Citigroup operating overseas. Banamex currently employs 38,000 people and operates 1,300 branches, serving over 12 million retail clients and approximately 10 million pension customers.

Until ownership falls below 50%, Banamex will continue to be reported under Citigroup’s results. However, the bank will retain its institutional and private banking operations in Mexico. A positive outcome of this pivot is that it will allow Citigroup to resume a “modest” level of share buybacks in the current quarter. The bank had postponed repurchases due to expectations that a sale would impact its capital levels.

In conclusion, Citigroup’s decision to pursue an IPO for Banamex signifies a shift in its strategy after failing to secure a buyer for the unit. CEO Jane Fraser’s focus on streamlining the bank’s operations has led to this decision, providing an opportunity for Citigroup to simplify its structure and potentially unlock value for its shareholders. The process of separating Banamex is expected to be completed by the second half of 2024, with the IPO likely to take place in 2025.