In the letter, Mr. Hernández, who is chairman of Citigroup’s Banamex unit in Mexico, said that “it is time to step down.”

TO BE NOTED: From the NY Times:

"Fringe Benefits Add Up for Banamex Chair

Last month, Citigroup released this resignation letter from Roberto Hernández Ramírez, who had served on the bank’s board since 2001. In the letter, Mr. Hernández, who is chairman of Citigroup’s Banamex unit in Mexico, said that “it is time to step down.”

While Mr. Hernández isn’t standing for re-election, the billionaire — No. 601 on Forbes’ list of richest people — is likely to continue costing Citi.

After Mr. Hernández announced his resignation from the board, a Citigroup spokesman, Mike Hanretta, told Bloomberg that Mr. Hernández would continue to have access to a wide variety of corporate perks — and judging from last year, they aren’t insignificant ones.

In the proxy statement that Citigroup filed Friday, the company disclosed that Mr. Hernández received $2.21 million in “all other compensation” in 2008. That’s far higher than the amount received by any other director: according to the filing, only one other director, C. Michael Armstrong, the former AT&T chairman, got anything, and it was less than $3,000. It’s also a multiple of what each of Citigroup’s top executives received when it came to their perks.

In the filing, Citi states that it “provided certain security services to Roberto Mr. Hernández and members of his immediate family as well as office, secretarial and related services, and aircraft usage for Citi business-related purposes.”

While Citi provides a breakdown on perks for its top executives, the company doesn’t do the same for its directors, such as Mr. Hernández. So it’s hard to say what Mr. Hernández’s biggest expense was.

Citi’s beleaguered shareholders, or the taxpayers whose money helped bail Citi out, may be glad to know that this expense is declining. In 2007, the bill for Mr. Hernández’s perks was $2.6 million, and in 2006, it was $2.86 million.

Go to Citigroup Proxy Statement via the S.E.C. »

– Michelle Leder, who runs the Web site footnoted.org, is keeping an eye on corporate perks disclosed in regulatory filings this proxy season. Some of her discoveries are appearing exclusively on DealBook for a special feature called “Perks Watch.”

"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.

But the real barrier to taking such a step is probably political more than anything else.

From The Baseline Scenario:

"A Quick Note on Bank Liabilities

with 3 comments

I want to pick up on a theme Simon discussed in his last two posts: the recent panic over bank debt, particularly subordinated bank debt. I’ll probably repeat some of what he said, but with a little more background.

Remember back to last September. What was the lesson of Lehman Brothers? The most important asset a bank has is confidence. If people are confident in a bank, it can continue to do business; if not, it can’t.

For the last six months, where has that confidence been coming from? Not from the banks’ balance sheets, certainly. And not, I would argue, from the dribs and drabs of capital and targeted asset guarantees provided by Treasury and the Fed. It has been coming from a widespread assumption that the U.S. government will not let the creditors of large banks lose money, out of fear of repeating the Lehman debacle.

The story goes something like this. Let’s say that Citigroup were restructured - via bankruptcy, or via government conservatorship - in such a way that creditors did not get all their money back. (None of this applies to FDIC-insured deposits or to recently-issued senior debt that is explicitly guaranteed by the government.) They might be forced to convert debt for equity, or they might be stiffed altogether. The first-order concern is that this would have ripple effects that could take down other financial institutions. According to Martin Wolf, bank bonds comprise one quarter of all U.S. investment-grade corporate bonds; losses would be spread far and wide, hitting other banks, pension funds, insurance companies, hedge funds, and so on. If Citigroup did not support its derivatives positions, then institutions that bought credit default swap protection from Citi would face further losses. (I believe that most U.S. banks were net buyers of CDS protection, however.) The fear is that it will be impossible to predict how these losses will be distributed and who else might go down.

The second-order concern is bigger. After all, Lehman did not seem to force any major financial institution into bankruptcy, although it may have twisted the knife that AIG had already stuck in itself. Once investors figure out that bank debt is not safe, they will refuse to lend to any banks, and we are back in September all over again. Or almost: it is possible that the Federal Reserve’s massive efforts to provide liquidity to the banking system will be enough to keep banks functioning. But who wants to take that risk?

This is why, for the last five months, the government has been doing everything it can to imply that bank creditors (at least for “systemically important” banks) will be protected, without saying so explicitly, because that would suddenly increase the potential liabilities of the government by trillions of dollars.

So what changed this week?

Simon’s theory is that the semi-forced conversion of Citigroup preferred into common shares was taken as a sign that the government may try to force creditors to exchange their bonds for common stock in future bailouts. Preferred shares are not, technically speaking, debt. But they are a lot like debt, and once you finish converting preferred into common, the next layer of the capital structure is subordinated debt. Now, Tim Geithner could come out and say, “Yes, we forced a conversion of preferred into common, but we’re going to stop there and not do the same to creditors.” But no, actually, he can’t say that, because that would constitute an explicit guarantee of all bank liabilities. So the market is left wondering, and we know by now that markets don’t like uncertainty.

Another possibility is simply that more and more people are thinking that the government may end up restructuring debt. Martin Wolf and Willem Buiter, both very serious people, both have raised the question of whether the government should be protecting creditors. Wolf, I believe, doesn’t answer the question (although he discusses the issue very well); Buiter says no.

Each time the lines on that chart above have spiked upward, the government has taken some action to imply that creditors will be protected, without making any promises. Chances are we’ll see another action along those lines. At some point, though, the government may lose credibility.

As an aside, one of the steps in Sweden’s sometimes-heralded bank rescue program was an explicit government guarantee on all bank liabilities. If any country could guarantee its banks, you would think it would be the U.S. But the real barrier to taking such a step is probably political more than anything else.

Written by James Kwak

March 6, 2009 at 2:04 pm"

Me:

My point might not be relevant, but I’d like to try again. Forgetting the shareholders, etc., for a moment, what is Citi’s plan going forward? I’ve referenced a number of stories from Reuters that they plan to sell off major holdings, but keep Banamex. A figure I’ve read for Banamex is $12 to $15 Billion Dollars. How much they could get for Monex, Nikko Cordial, etc., I haven’t read. However, we are going into a depression. Many businesses might not make it. Citi’s plan, just like AIG’s, was essentially to get a bridge loan from the government to get through this crisis, and repay the money in the future when they can get a better deal for these assets. But what happens if that strategy blows up? It might be better to sell these businesses now.

What I’m asking, in other words, is whether or not Citi’s assets will ever be worth enough, going forward, for anybody to get anything from them? If the government is having to subsidize these assets, can we be sure that they aren’t already clearly a major loss?

If we are not really trying to save Citi, but insure investors or creditors of Citi, why not negotiate with them directly, acknowledging that they have us by the short hairs? It won’t be a very pleasant realization, but at least we’d be attacking the problem directly and telling the taxpayers the truth.

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