This chart shows the percentage of GDP made up by incoming remittances for the major LatAm countries

TO BE NOTED: From Inca Kola:

"Remittances in LatAm, 2008 (the chart of the day)

There has been ink spilled already on the slowdown on LatAm remittances (i.e. money sent back from industrialized nations by LatAm citizens living over there) that the financial crisis is causing, but so far the analysis has been stuck at the amounts of money being sent over and hasn't really examined which countries are more likely to feel the pinch.

This chart shows the percentage of GDP made up by incoming remittances for the major LatAm countries (with all due respect places like Belize are left out as their tiny GDPs skew the results out of shape and don't provide a fair comparative sample). The remittances data used comes from the Interamerican Development bank and the country GDP figures are from the CIA using the purchasing power parity (PPP) figures.

Click to enlarge

Top of the pops on this poll is El Salvador, a country that relies on cash sent home for 8.35% of its country GDP; that's an enormous figure and is comparable to the direct effect copper has on the GDP of Chile. Next up are three other Central American states, Guatemala (6.15%), Nicaragua (5.76%) and the Dominican Republic (3.73%). Only then does South America appear, with Ecuador (2.64%), Bolivia (2.51%) and Paraguay (2.4%).

Mexico is next at 1.59% but deserves a special mention due to the absolute size of its remittances trade. At U$25.145Bn it is by far the largest destination for remittances (second is Brazil at U$7.2Bn) and Mexico in fact accounts for 38.44% of all remittances received in LatAm in 2008.

Finally, the trio of Costa Rica (1.25%), Peru (1.24%) and Colombia (1.19%) are the other three countries that beat the regionwide average of Remittances/GDP of 1.09%. It's safe to say that all of the above countries will feel the effects of a slowdown in remittances in 2009 and beyond, with the first tranche of Central American states, Mexico, Ecuador, Bolivia and Paraguay feeling the worst effects.

"The law does not cover emergencies derived from the global crisis"

From Inca Kola:

"Citigroup (C): Mexico moves the goalposts

And so Citigroup can likely keep Banamex, according to Mexican gov't politicos that have just earned themselves a "one large favour owed to me" card (and will surely know how to use it). Reuters translates the moneyline which is being used....

"The law does not cover emergencies derived from the global crisis"

.....which is, of course, a total affront to logic and commonsense. Y'see according to Mexican lawmakers the clear legal statute that does not allow any foreign government to hold more than 10% of a bank doing trade in Mexico suddenly doesn't count because......because....because the US gov't didn't WANT to buy 36% of Citigroup ....and that makes it different. Cos they said so. And that national laws go out the window and Mexican pants are dropped to US pressures isn't really news. After all, it's greedy human beings we're dealing with here so logic obviously has to take a back seat. I'll just shrug my shoulders and scrunch my brow a bit and go "waddya expect?".

Bloomberg does a good job of explaining the outcome of the Mexican mental and legal gymnastics that lawmakers have gone through to get to this point. Here's the link worth reading. The only thing lacking from both Reuters and Bloomie's reports are meaningful opposition quotes and positions. Bloomie has.......

"If it’s a proposal that helps, that doesn’t infringe against the sovereignty, the nationalism and the interests of Mexico, I say it should be approved. If it infringes, we’re going to dispute it.”

.......from an opposition PRD flunkey and Reuters hints at previous "pressure from nationalists", but the comments are low key. This is strange, because this story will create open season on a Felipe Calderon (allegedly) selling out la patria to the gringos. Lopez Obrador and company will milk this one for all it's worth; and it's worth a lot. Calderon gets the piñata treatment as of tomorrow morning.

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1 comments:

Don said...

I'm still not clear as to what their position is if the US has to seize Citi. It sounds like we can. Was that mentioned anywhere?

Don the libertarian Democrat

March 20, 2009 10:09 AM

A sale of Banamex, at prices mooted around $9-12bn, would have a significant impact on the currency.

TO BE NOTED: From Alphaville:

"Citi, Banamex and the peso Posted by Tracy Alloway on Mar 20 08:53.

Citi’s Banamex saga has taken a rather ludicrous turn:

MEXICO CITY, March 19 (Reuters) - Mexico said on Thursday that foreign governments can own stakes in its banks given the crisis in global financial markets, meaning Citigroup will not have to sell its Mexican subsidiary Banamex for now.

The finance ministry had been examining whether a U.S. government rescue plan to take a stake in Citigroup (C.N) would force a sale of Banamex, Mexico’s second-biggest bank and one of the crown jewels in Citi’s global banking empire.

“The law does not cover emergencies derived from the global crisis,” the ministry said in a statement, referring to legislation barring foreign governments from owning Mexican banks.

While the statement did not mention Banamex or Citi by name, it made clear that Mexico does not want to rile battered financial markets by forcing a Banamex sale.

If the legal logic behind this deal sounds rather strange, it’s because it is. There is something else going on here.

These two graphs, from Standard Chartered, should give you a hint of what that might be.

The Mexican peso has weakened substantially since August 2008, meanwhile inflation in the country has stuck at quite a high level, creating something of a headache for the country’s central bank in terms of policy decisions; it can’t lower interest rates to boost its economy without further weakening the peso and increasing inflation.

A sale of Banamex, at prices mooted around $9-12bn, would have a significant impact on the currency.

RBS currency strategist Flavia Cattan-Naslausky explained to us last month:
… in 2001 Citibank paid USD12.5bn for Banamex. Banamex makes about USD900m in annual profits which is about 9x-10x book value. So that’s where this US9bn consensus number is coming from. But there are really several issues. First is who has that kind of cash?! And whoever does, do they want to put it all in Mexico these days?! So it would be more probable that there would need to be some financing scheme involved that lowers the cash portion of the payment. This would have strong implications for FX flows (or lack of) I think that it is a very big deal this whole sale as it will set a precedence for other foreign banks that need to divest in mexico because of nationalization of banks. It can get very complicated. That is why I think there is still a good amount of risk for the currency.

So being a bit flexible on legal rules on foreign ownership will save the Mexican government the hassle of sterilising currency outflows related to the deal and help preserve its fragile currency. A budding trade dispute with the US might might also have played a role in Mexican leniency, in this case.

But, make no mistake, this flexibility is meant to be very temporary. The Mexican government plans to send a bill to Congress to ‘clarify’ exemptions on foreign ownership restrictions in times of crisis. As Bloomberg reports, under that proposal:
… banks, after three years of operating under the exemption to allow foreign government stakes, would have to sell 25 percent of their Mexican unit’s shares on the local market. That requirement would rise to 50 percent of shares after six years.

So unless something changes in Citi’s ownership structure, Banamex is set to go — albeit eventually — whenever this ‘global crisis’ is over.

Related links:
Citigroup (C): Mexico moves the goalposts - Inca Kola
A Mexican US-fallout wave - FT Alphaville

This entry was posted by Tracy Alloway on Friday, March 20th, 2009 at 8:53 and is filed under M&A, Capital markets. Tagged with banamex, citi, currencies, mexico, Peso."

Me:

Don the libertarian Democrat Mar 20 14:03

Unless I'm mistaken, it sounds as if this would also allow the US to seize Citi, and hence, Banamex, and hold it until it was sold, at least for three years.

if the US Gov't takes its 36% stake in Citigroup then it will be a larger-than-10% shareholder of Banamex, something against Mexican law. Won't it?

From Inca Kola News:

"Citigroup and Banamex: There's a fight brewing

The Mex Files has a post up that notes the Mexican angle to last week's news about Citigroup giving 36% of itself over to the US Government. RG starts his note by saying that it's a story you probably won't get to read North of the Rio Grande.

I beg to differ. I think it might become a very big story indeed.

The nub of the issue revolves around Mexican law, which states in crystalline manner that foreign governments cannot own more than 10% of any bank that operates inside Mexico. It's as clear as a bell and on the statute. So as Banamex is a wholly owned subsidiary of Citigroup (C paid $12.1Bn or so back in 2001 for the bank) if the US Gov't takes its 36% stake in Citigroup then it will be a larger-than-10% shareholder of Banamex, something against Mexican law. Won't it?

Well, maybe yes and maybe no. It was interesting that Citi's CEO, Vikram "still got a job" Pandit, spent two days down Mexico way earlier this month. He met with the bank honchos of course, but also gov't lackeys and the regulator dudes too, so we hear. He also made it very plain that Citigroup plans to hold on to Banamex, saying things like the Banamex is Citi and Citi is Banamex and may sacred matrimory reign etc etc. Pandit dixit Feb 20th 2009:

"I want to make it very clear: Citi and Banamex are one and the same......The future of Citi is in emerging markets. It’s in Latin America. It’s in Mexico with Banamex.”

So with last week's Citigroup/US Gov't announcement that already has Mexican officialdom and opposition politicos smelling blood, it's worth noting how Pandit recently split C into two parts, namely Citi Holdings (all the bad stuff) and Citicorp (all the retail banking things that are profitable and everyone likes, including Banamex).

So here's the question that's been itching at me all weekend: Do Citigroup's intentions regarding Banamex signal that the US Gov't is only (or majority) buying into Citi Holdings, the toxic end of C?

It's intriguing. It would be an über-underhand move concealed from the market so far and would cause uproar if the news hit. If it is true, then the US taxpayer is getting an even worse deal than s/he thought. In fact, it would likely make Uncle Sam the majority holder in the toxic bank to end all toxic banks. However it does fit the Citigroup line that says Banamex is safe and not in any legal trouble and will stay part of C.

However, if in all likelihood it's not true and the US gov't is getting 36% of the whole shebang, Citigroup is undoubtedly breaking Mexican law by holding onto ownership of Banamex. So either Mexico changes the law to suit present circumstances (possible, though it will be an absolute political field day for Calderon's opposition) or Banamex will have to be sold to a third party, something that Pandit clearly doesn't want to happen.

Already there are overtures being made by other banks, which isn't surprising because unlike its lamentable parent company Banamex is a well-managed and highly profitable bank. I'd go as far as to say that Banamex is quite the jewel in the Citigroup crown and as such a prized asset that would be a major loss for both C and Pandit. But sharks are circling all right. For example here's an AP report noting Brazil's Itau is interested in the asset.

The price tag being bandied around the market right now is something in the region of U$12Bn to US$15Bn, meaning that Citigroup would most probably walk away with its original investment money (not to mention the eight years of profits generated by the subsidiary). Let's see how the story develops, but you have to wonder if Banamex is the canary in Pandit's coalmine. After all the moves and sounds made by Pandit this month any eventual sale of Banamex might become the straw that breaks the camel's back* and sees him "being resigned".

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Appendix: A few stats about Banamex as culled from the C website. This gives you an idea as to why Pandit wants to keep a tight hold.

• 1,233 branches
• 28,759 employees
• 4,492 ATMs
• 7.9 million credit cards
• 2.6 million checking cccounts
• 20.52% of all assets in the Mexican banking system

But wait! There's more!

• Seguros Banamex (Insurance): 5th largest Mexican insurance company
• Afore Banamex (Pension Funds): Mexico's largest private pension fund with over 4 million affiliates
• Accival - Acciones y Valores de México (Brokerage House): Top Brokerage of the country holding 16% of assets

* metaphor mixing is a sacred right of the blogger

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Me:

Don said...

What you're saying is that Citi has a $15 billion asset that it doesn't want to sell. But if Citi was seized, someone would pay $15 billion or so for Banamex.

There's been a lot of talk about holding companies, but I wonder if the US taxpayer knows that Citi could raise $15 billion on its own.

What you describe is an attempt to allow Citi to keep Banamex, which is where the profit really is. In other words, we're funding Citi so that it can keep Banamex. Am I wrong?

Don the libertarian Democrat

March 1, 2009 3:23 PM

And a response:

Otto Rock said...

That's kind of right, Don.

Perhaps the more pressing issue is that Pandit&Co realize the enormous difference between a $15Bn asset and $15Bn in cash right now. If Banamex were sold, the money raised would have to be thrown down the bottomless pit and lost forver. However the assets (if C can hang onto them) will make C worth something in Pandit's Utopian future.

So yes, I suppose that in effect (in the longer-term vision) the US taxpayer is paying C not to sell its Mexican holdings. Make of that what you will; I couldn't say if it's good or bad.

March 1, 2009 3:31 PM

"Yet the good news shows that we will lose the battle against poverty and misery only if we give up "

Jeffrey Sachs with some good news in the Guardian:

"Good news in bad times

"Let's celebrate the global successes in fighting poverty, disease and hunger

Comments (20)

• Jeffrey D Sachs
• guardian.co.uk, Sunday 21 December 2008 14.00 GMT
• Article history

At a time when the headlines are filled with financial crises and violence, it is especially important to recognise the creativity of many governments in fighting poverty, disease and hunger( GOOD IDEA ). The point is not merely to make ourselves feel a little better, but rather to confront one of the world's gravest threats: the widespread pessimism( IT MIGHT BE REALISM, BUT, YOU'RE RIGHT, WE SHOULD TRY, IN ANY CASE ) that today's problems are too big to be solved. Studying the successes gives us the knowledge and confidence to step up our shared efforts to solve today's great global challenges.

Hats off, first, to Mexico for pioneering the idea of "conditional cash transfers" to poor households. These transfers enable and encourage those households to invest in their children's health, nutrition and schooling.

Mexico's opportunities programme, led by the president, Felipe Calder, is now being widely emulated around Latin America. Recently, at the behest of the singers Shakira and Alejandro Sanz, and a social movement called Alas that they lead, all of Latin America's leaders have committed to step up the region's programmes for early childhood development, based on successes that have been proven to date. ( SOUNDS GOOD )

Norway, under the leadership of prime minister, Jens Stoltenberg, is maintaining its tradition of creative social and environmental leadership. The government has put together a global alliance to prevent maternal death in childbirth, investing in safe delivery and the survival of newborns. At the same time, Norway launched an innovative $1bn (£0.66bn) programme with Brazil to induce poor communities in the Amazon to end rampant deforestation. Cleverly, Norway pays out the funds to Brazil only upon proven success in avoiding deforestation, compared with an agreed baseline.( GOOD IDEAS )

Spain, under the leadership of the prime minister, José Luis Rodríguez-Zapatero, has given a major stimulus to helping the poorest countries to achieve the UN millennium development goals (MDGs). Spain created a new MDG fund at the United Nations to promote the co-operation needed within the UN to address the various challenges of the MDGs. ( WORTH A SHOT )

The Spanish government rightly proposed that true solutions to poverty required simultaneous investments in health, education, agriculture and infrastructure, and then the Spanish put up the funds to help make that integrated vision a practical reality. Spain will host a meeting in January to launch a new fight against global hunger. Once again, Spain is proposing practical and innovative means to move from talk to action, specifically to help impoverished peasant farmers to get the tools, seeds and fertiliser they need to increase their farm productivity, incomes and food security. ( WE NEED TO SEE IF THEY WORK. IF SO, FINE )

The Australian prime minister, Kevin Rudd, has similarly surged to the forefront of global problem solving, putting forward a bold action plan on climate change and proposing new and practical( A KEY CONCEPT ) means to address the MDGs. Australia put real money on the table for increased food production, along the lines that Spain is proposing. It also champions an increased programme of action for the poor and environmentally threatened island economies of the Pacific region.( FINE )

These efforts have been matched by actions in the poorest countries. The landlocked and impoverished country of Malawi, under the leadership of President Bingu wa Mutharika, has doubled its annual food production since 2005 through a pioneering effort to help its poorest farmers. The programme has been so successful that it is being emulated across Africa( GOOD ).

Mali's government, under President Amadou Toumani Touré, has recently put forward a bold challenge to the world community. Mali is eager to scale up investments in agriculture, health, education and infrastructure in its 166 poorest communities. The plans are detailed, thoughtful, credible and based on proven successes that the government has already achieved. The rich world has promised to help Mali, and now Mali has led the way with its creativity( GOOD FOR THEM ).

There are countless more cases that can be mentioned. The European Union has launched a €1bn (£0.93bn) effort to help peasant farmers. The Gates Foundation, Unicef, Rotary International and many governments have succeeded in bringing down polio deaths to one-thousandth of the rate a generation ago, bringing the disease to the verge of eradication. Similar efforts are under way on many other fronts: the control of worm infections and leprosy, and a major global effort to bring malaria deaths nearly to zero by 2015.( VERY GOOD )

All of these successes, and many more, share a similar pattern. They address a well-defined( KEY ) and serious challenge, for example, low food production or a specific disease, and are based on a well-defined( KEY ) set of solutions, such as the supply of agricultural equipment and inputs needed by peasant farmers or immunisations.

Small-scale demonstration projects prove how success can be achieved; the challenge then becomes taking the solutions "to scale" in nationwide or even worldwide programmes ( TRUE ). Leadership is needed within the countries in need as well as among the rich nations that can help to launch and finance the solutions. Finally, modest amounts of money, directed at practical problem solving, can make an historic difference( I'M FOR IT IF IT'S ASSESSED FOR SUCCESS ).

Bad news can crowd out good news, especially in times of serious financial crisis and political unrest. Yet the good news shows that we will lose the battle against poverty and misery only if we give up and fail to heed the intelligence and goodwill that can be mobilised today. And perhaps next year, the US will rejoin the global effort with a new and remarkable force, led by a young president who has rightly told Americans and the world that "Yes, we can"."

No more about Bush. I'm begging you. I'm counting the seconds.