Citigroup’s Acquisition of Mexico’s Banacci Affects Insurers

Yesterday’s announcement that Citigroup will acquire Mexico’s second largest financial group, Grupo Financiero Banamex Accival, popularly known as “Banacci,” for $12.5 billion in cash and stock, will have significant repercussions on the insurance market south of the border.

The deal in itself is enormous. As one analyst told the BBC, “It’s equivalent to the entire amount of foreign investment in Mexico during all of last year, and amounts to 10 percent of the entire capital of the Mexican stock market.” When completed the group will combine Citigroup’s existing Mexican subsidiaries with Banacci’s to regain the number one position in Mexican finance.

From that position the new group will be well placed to offer a broad range of banking, asset management and insurance products to the rapidly developing Mexican market. The country’s economy has stabilized. The peso is the strongest currency in Latin America, and the country is growing rapidly, pushed by increasing foreign investment and modernization efforts.

Analysts predict more activity in Mexico as smaller financial institutions are consolidated into larger groups. Savia, already under pressure from a series of losses, is a prime target.

Citigroup’s increased presence will affect other insurance companies in the Mexican market. Holland’s AEGON, which has an insurance joint venture with Banacci, Banamex AEGON, reacted to the news immediately. “In the next several weeks, AEGON will explore, together with its Mexican partners and Citigroup, the options available in the future that result from the announced transaction,” said a company press release.

There will be lots of other reviews taking place as well by financial groups with interests and partnerships in Mexico, in an effort to redefine their positions vis-à-vis the 700 pound gorilla that has just landed in their midst.