How Healthy Is the Banking Sector in Mexico?
Inter-American Dialogue's - Latin America Advisor - Financial Services
October 30, 2012
The offering of about 25 percent of the Mexican unit of Banco Santander raised $4 billion last month for the bank in Mexico's largest-ever IPO. Amid heavy demand, the shares jumped six percent on their first day of trading. To what can Santander attribute the offering's success? How healthy is Mexico's banking sector in general? What lessons should banks in other parts of the world learn from Mexico?
“The offering was more than a success,” writes Ricardo Ortiz, associate at the Mexico City office of Diaz, Reus & Targ and Marta Colomar, associate at the firm's Miami office. "Grupo Financiero Santander Mexico received requests for about 4.8 times as many shares as were offered and attracted about $20 billion in orders. Such strong demand is a reflection of an optimistic global view of Mexico's economy.
“Indeed, there are expectations of sustained double-digit credit growth for Mexican banks, which are tightly regulated and well capitalized. After the global recession, the Asian market propelled Latin America and especially Mexico's economy. The Mexican investment climate was and is still very favorable to foreign investment.
"Nevertheless, foreign companies had their complaints basically in two sectors: labor laws and taxation. President-elect Enrique Peña Nieto, whose party has the majority in both houses of the country's parliament, has acknowledged the system's deficiencies regarding labor regulations. To help resolve any issues that foreign investors may find when investing in Mexico, the president-elect raised pressure on his party to back a labor reform proposed by the outgoing administration. As a result of this reform, Mexico's economy will keep growing.
"The second advantage was that the offering was carried out in Mexico and the United States. Santander placed 19 percent of the offering in Mexico and the rest via American depositary shares in New York. The stock was sold at a fair price and the number of bids penetration. With President-elect Peña Nieto taking office on Dec. 1, the probability is better than ever that Mexico will put into effect reforms to improve its economy.”
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