FiNETIK – Asia and Latin America – Market News Network

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What’s Wrong With The Global Banking System

Robert Mazur, the U.S. Customs special agent who led one of the most successful undercover operations in U.S. law enforcement history, gave us some insight into international money laundering and said the Federal Reserve needs to do more to help.

In the 1980s Mazur spent five years infiltrating the highest circles of Colombia’s drug cartels as a money launderer, transforming more than $34 million in cocaine cash into traceable, paper-trailed bank transactions under the pseudonym Bob L. Musella.

His book, The Infiltrator: My Secret Life Inside the Dirty Banks Behind Pablo Escobar’s Medellín Cartel, explains how “Operation C-Chase” led to the indictment of 85 individuals – including several officials affiliated with the then-seventh largest privately-held bank in the world, the Bank of Credit and Commerce International (BCCI)—and the conviction of General Manuel Noriega.

Now he is on a mission to “share information with the public about how this money laundering activity has engulfed the will of the financial institutions of the world.”

Mazur says that “the international community is today doing the same thing that BCCI and their officers were doing 20 years ago”—citing the HSBC money-laundering scandal and the tax havens of the super-rich—and told BI that the problem is much larger than the estimated $2.1 trillion that crime generates each year.

“What [the corrupt bankers at BCCI] did was market flight capital, and they identified it as basically money seeking secrecy from governments,” Mazur said. “Yes it does include the items that the $2.1 trillion identifies but it’s bigger than that because there are times that you take legal money and use it for an illegal purpose, and that money is as big if not bigger than the illegal money.”

He calls the practice “a major moneymaker for the banking world” and cites the Standard Chartered scandal, in which bankers “took $250 billion worth of basically legal money and used techniques to hide from governments the fact that the money was being moved in these otherwise-legal transactions on the behalf of sanctioned nations, including Iran.”

He said the HSBC ruling listed six or seven methods “traditionally used by banks in a big way facilitate relationships with people who want to hide money from governments” and explained that bankers provide these services “to entice these people to bank with them” so that the bank is able to increase their deposits.

Mazur said that banking regulators are “not as focused on the issue of criminal conduct as they are on … making sure that the institution itself stays healthy” so investigations take years and result in a lengthy report.

There’s nothing built in the system to engage criminal investigations up front,” Mazur said.” They always come in a very rusty state after they’ve been played with by the regulators. By then everyone’s built in their plausible deniability and it’s a very difficult task to expect the investigators to then come up with the intent evidence,” which is essential for criminal prosecution.

He added that the current regulatory process ignores the fundamental problem, which is that “there are two brains in a bank—there’s this profit brain that’s motivated by earning money … and then we have a compliance department and their whole agenda has nothing to do with profit, it has to do with identifying risk and minimizing it. But when the compliance and the sales brain meet, upper management sides with sales because that’s their gig too—profits. And there has to be a way to try to begin to change that chemistry of the interaction of the two brains.”

One straightforward ways to do that, according to Mazur, would be to crack down on bankers who solicit shady business—like the ones at HSBC—by putting a few “behind bars for a very long period of time” instead of just giving them a fine.

Another simple way is to require the Federal Reserve to share information about member banks who are in the bulk bank note business. If regulators and prosecutors knew which institutions were moving much larger amounts of money through wire transfers (which the Fed tracks), they would know where to focus investigations or covert-type operations.

“You’re honing down all your information to go after, proactively, the institutions most involved in moving this type of money,” Mazur said. “It’s not complicated but the Federal Reserve doesn’t give that information out freely and that’s something that needs to change.”

He noted that concerned individuals in the military, law enforcement and intelligence community have accessed more of that information in the last 2 years than ever before, but emphasized that more has to be done.

“That’s one of the barriers that’s slowly crumbling, and it’s an important barrier to wind up crumbling, but it’s not completely accessed,” Mazur said.

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Filed under: Banking, Colombia, Latin America, Mexico, Risk Management, , , , , , , , , , , ,

HSBC blood fingers – Money Laundry Scandel a Mexican Perspective

In the most recent campaign by the United Nations Office on Drugs and Crime (UNODC, for its acronym in English), states that organized crime generates annual revenues of a whopping 870 billion dollars.

Translation of the original article in Spanish by Dossier Politico by Saul Arellano

The most lucrative for organized crime are drug trafficking, which generates about 320 billion dollars annually, and counterfeiting, with revenues of 250 billion dollars a year.

Moreover, through human trafficking offenders get 32 billion dollars over 7 billion for alien smuggling in addition to that traffic in elephant ivory, rhino horn and tiger parts generates about 75 billion dollars.

The human costs of these activities are huge, especially considering that each year, the UNODC estimates that 2.4 million human beings fall victims of human trafficking, perhaps the most infamous crime committed in our time.

Two things are to be noted:

the first and most obvious is that these activities have a global character and can not be explained but for the existence of powerful networks operating at regional and global levels.

 The second part of a question: if this is the amount of money generated by transnational organized crime, how and by whom move? I.e. who has the power, technology and legality to embed into the legal economy  over a 1 trillion USD  from the criminal illegal organizations  world?

The answer is obvious: there is a complex global financial system that can launder money and gives criminals the ability to remain unpunished because through these resources can carry out legal transactions such as buying property vehicles, and in certain contexts, to weapons.

Why did HSBC do this? It turns out that the “angels” of this global bank “made mistakes” in monitoring suspicious accounts or regarded as “high risk”. According to the note of BBC News, signed by my colleague Julio Brito, is stated:

“HSBC said it takes Mexico´s compliance law seriously compliance (…) ‘We apologize, we will recognize these errors, accounting of our actions and commit ourselves completely to repair what was done wrong’, said the bank”.

Is this apology enough? What about Mexico´s Police Investigation ? What about the Financial Intelligence Unit of the Ministry of Finance? Surprisingly, the scandal was discovered and unrevealed by the investigations of the Permanent Subcommittee on Investigations of the Senate of the United States, but in Mexico the results are and reactions are lukewarm..

I quote again Julio Brito’s note: “The subsidiary of banking giant HSBC Mexico sent seven billion dollars in cash to the bank’s unit in the U.S. between 2007 and 2008, a volume that could only reach that size if included illegal drug profits.” (http://www.cronica.com.mx/nota.php?id_nota=676540)

According to an expert I consulted, the money laundering operations in Mexico are very easy to perform because the financial system is full of holes. For example, operations that money exchange offices have with banks are extremely lax, compared with the regulations of other countries.

Add to this the ease with which managers can access customer accounts, which facilitates the actions of triangulation that due to the operation of electronic banking today can be done in minutes.

Anyway, HSBC faces one of the most embarrassing scandals in its history, which opens one more question: Is it the only bank with these weaknesses operating in our country? That is something the authorities should investigate and seriously, if you really want to win the fight against drug trafficking.

The war on organized crime in Mexico has killed more than 50 000 dead. Now HSBC is an accomplice, at least by default in their controls, as was recognized last Tuesday, so not a bad idea and that the customers of this institution to continue providing profits to reconsider a bank that has indirectly contributed significantly to the bloodshed in our country.

If sending 7 billion dollars is considered impossible for a single bank, not to include narco resources, another question arises, how is that in a country with 52 million poor (on or below poverty line),  transnational banks get their biggest gains and transfers? See if the financial reports of Citi Group, Santander, BBVA, Scotiabank and other global banking institutions operating in Mexico.

While it is true that the fees (banking, transaction and credit cards) charge by these banks are draconian and interest rates that are the worst practices of usury, HSBC scandal should lead policy makers to reconsider that the level of looting reached by foreign banks, to feed their unstable global operations.

Source: Dossier Politico 19.07.2012  by Saul Arellano sarellano@ceidas.org

Filed under: Banking, Mexico, Risk Management, , , , , , , ,

Citi and Orient Securities Sign China Securities JV Agreement

Citigroup and Orient Securities Company Ltd signed definitive agreements June 2, subject to regulatory approval, establishing a securities joint venture to operate in the Chinese domestic market. The new JV will be called 东方花旗证券有限公司 in Chinese and “Citi Orient Securities Co. Ltd” in English.

The joint venture will engage in investment banking business in the Chinese domestic market, including equity and debt underwriting and advisory services. Orient Securities Company Ltd will have a 67 per cent stake in the new entity with the remaining 33 per cent owned by Citigroup, consistent with existing Chinese regulations.

In addition to the investment banking JV, Orient Securities and Citi will also explore further cooperation in other areas such as research and training.

“The pairing of Citi’s global capabilities and Orient’s local strengths will create a market leading securities company with the ability to serve Chinese and international companies to help them raise capital from local equity and debt markets. This new partnership underscores our strategic commitment to China’s capital markets and complements our well-established banking franchise in China,” said Stephen Bird, CEO for Citi in Asia Pacific.

“We are delighted to be forming this important partnership with Orient Securities, a strong, highly reputable local firm which shares Citi’s management philosophy on building for success.

This announcement underlines our continued investment in China to support our clients,” said Andrew Au, CEO for Citi China.

Source: Asia E-Trading, 02.06.2011

 

Filed under: China, News, , , , , , ,

Hong Kong: First A-share Industry Sector ETFs to Debut on HKEx

Hong Kong’s Exchange Traded Fund (ETF) market further expands with a series of five Mainland A-share industry sector ETFs setting to debut on Wednesday, 18 November on the Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx).

The new Mainland A-share index ETFs are:

Stock Code Name of ETF Benchmark index
2846 iShares CSI 300 A-Share Index ETF CSI 300 Index
3050 iShares CSI A-Share Energy Index ETF CSI 300 Energy Index
3039 iShares CSI A-Share Materials Index ETF CSI 300 Materials Index
2829 iShares CSI A-Share Financials Index ETF CSI 300 Financials Index
3006 iShares CSI A-Share Infrastructure Index ETF CSI 300 Infrastructure Index

With the listing of these five new ETFs, there will be a total of eight ETFs on Mainland A-share indices listed on the Exchange, and HKEx will be the first exchange with Mainland A-share industry sector ETFs.

All ETFs listed on the Exchange, including these five new iShares listings, are designated for market making and for short selling with tick rule exemption.  The market makers for these five ETFs are Citigroup Global Markets Asia Limited, Credit Suisse Securities (Hong Kong) Limited and UBS Securities Hong Kong Limited.

On 18 November, the Exchange will have listed 42 ETFs.  There are eight ETFs on Mainland A-share indices, seven on Hong Kong equity indices, 22 on other regional and international equity indices, two on commodities and three on bonds and money markets.

The three other Mainland A-share index ETFs are:

Stock Code Name of ETF Benchmark index
2823 iShares FTSE/Xinhua A50 China Index ETF FTSE/Xinhua China A50 Index
2827 W.I.S.E. – CSI 300 China Tracker CSI 300 Index
3024 W.I.S.E. – SSE50 China Tracker SSE50 Index

Investors should note that all A-share ETFs use derivative instruments to synthetically replicate the performance of the underlying benchmarks.  These ETFs are subject to counterparty risk of the derivative instruments’ issuers and may suffer losses if such issuers default or fail to honour their contractual commitments. For a better understanding of the risks involved, investors are advised to read the ETFs’ prospectuses in full prior to making any investment decisions.  Information on the various risks of ETFs and their structures is available on the HKEx website.

Source: MondoVisione 17.11.2009

Filed under: Asia, China, Exchanges, Hong Kong, News, , , , , , , , , , ,

Banamex – Citigroup forced sales on the table of Mexican Court

Citigroup’s dismal financial state doesn’t grant its chief, Vikram Pandit, much leverage in negotiations these days.

He conceded defeat to Washington on Phibro, deciding that it was simpler to sell the profitable commodities trading unit rather than argue for keeping a risk-taking, capital intensive business that pays megabonuses. But Mr. Pandit has no reason to cave so easily if Citi’s ownership of the Mexican bank Banamex is threatened.

For now, that’s just a possibility. Mexico’s high court is set to decide this week whether to hear a case brought by a contingent of Mexican senators that Citi must offload Banamex because a foreign government owns more than 10 percent of its stock. They want the court to decide whether the finance ministry had the constitutional right to decree in March that the United States government’s 34 percent slice of Citi was acceptable because it was intended to be short term.

FiNETIK Note: The Banamex- Citi cases could also extend to other banks with foreign government holdings like AIG, Bank of America, Bank of New York Mellon, Royal Bank of Scotland. However the strong nationalist sentiments about Banamex do set it above the others.

So Citi is hardly up against a wall just yet — and it reckons any decision to force a sale would breach the North American Free Trade Agreement anyway. But if push comes to shove, the bank should be prepared to put up more of a fight than it did for Phibro.

For starters, Banamex is a full-service bank, not just a trading operation, so Citi has a stronger claim for keeping it. Second, it turns a pretty handy profit. It earned about $750 million in the first half of the year, about half of Citi’s profits from Latin America. As a whole, Citi lost money in the first six months of 2009, omitting one-time items.

And Banamex’s relative success as a retail, commercial and investment bank has turned it into a celebrity within the bank’s corridors of power. At last year’s investor day, Mr. Pandit held the Mexican unit up as an example for how the rest of Citi ought to look.

That makes it a powerful business worth holding on to. And Citi, in large part because of $45 billion in United States taxpayer aid, no longer has to sell profitable businesses just to bolster its balance sheet. Should decisions in Mexico start going against it, the bank has every reason to hunker down for a standoff.

An Alternative View

Just because Banamex is good for Citi doesn’t necessarily mean ownership by Citi is great for Banamex. The United States bank doesn’t help Banamex’s financing costs much, and non-United States ownership could help it attract previously reluctant customers.

Banks in emerging markets can benefit from foreign ownership through lower financing costs, access to an international network and the adoption of proven and trusted processes and technology. It’s not obvious how any of these apply to Banamex.

Its obligations receive no guarantee from the Citi parent company, and its access to financing could even suffer as a result of Citi’s troubles. Moreover, as the second largest bank in Mexico, it is big enough in its own right to get access to international services and acquire the staff and technology needed to be at least as up to date as Citi.

Mexico is a big enough market that its bigger banks are fully competitive, even internationally, without needing help from multinational groups as banks in smaller markets often do. The country is also intensely nationalist, particularly in relation to its neighbor to the north.

Hence, while an independent Banamex might see little difference in relationships with large and sophisticated Mexican companies, it could well benefit from having greater appeal to small businesses, consumers and, from time to time, the Mexican government.

There would be other advantages to Banamex from independence. As a stand-alone bank, it could decide its own strategic goals, organizational priorities and structure. That would most likely be an improvement on fitting in with Citi’s plans, which are currently heavily influenced by its recent losses and government bailouts. Its senior management would have more independence, which might help in attracting the best people.

A ruling forcing Citi to divest Banamex would be hugely disruptive for the bank, but it’s still a possibility. It is in Citi’s interest to object, and there’s a risk any new Banamex owner might not develop the franchise properly. Even so, for Banamex independence could offer attractions.

Source: New York Times, 19.10.2009

Filed under: Latin America, Mexico, News, Risk Management, Services, , , , , , , , , , ,

HSBC in China JV talks with Industrial Securities

HONG KONG -(Dow Jones)- HSBC Holdings PLC (HBC) is in advanced talks to set up an investment banking joint venture in China with Industrial Securities Co., a person familiar with the situation said Wednesday.

The UK-listed HSBC, which already has a wide-reaching presence in China, is seeking to join the handful of foreign firms with a presence in the mainland’s lucrative underwriting and advisory markets.

The person familiar with the situation said it is difficult to say when HSBC and Industrial Securities will agree on a deal, and declined to elaborate.

Industrial Securities is a Fujian-based brokerage with a registered capital of CNY1.93 billion, according to its website. It provides a full-range of services in China, including broking, advisory, and new listing underwriting.

The Apple Daily reported Wednesday, citing unnamed sources, that the two sides may strike a deal by the end of this year to set up the venture, subject to agreeing on the terms and regulatory approval.

HSBC wants management rights over the entity, a model that UBS AG (UBS) and Goldman Sachs Group Inc. (GS) used when setting up their Sino-foreign brokerage joint ventures, according to the report in the Chinese-language newspaper. China has capped the maximum stake foreign banks can have in a Chinese brokerage venture at 33%, though a few of the tie-ups have accorded management control to the foreign firm.

If its venture is approved, HSBC would be joining a list of just a handful of foreign brokers that have set up shop in the mainland through joint ventures in recent years.

In December, the Chinese government ended an almost two-year moratorium on approving new joint ventures, as it shielded its domestic brokerages from foreign competition. Since then, China has approved ventures by Credit Suisse Group and Deutsche Bank AG (DB), though those tie-ups are only allowed to underwrite and sponsor deals domestic securities and debt deals, and not the trading of Chinese-listed shares.

But the list of foreign firms seeking entry is long, especially with China’s stock market being one of the world’s best performers this year. Many Shanghai-listings also registered gains of more than 90% on their first-day of trade.

Australia’s Macquarie Group Ltd. (MQG.AU) has signed a memorandum of understanding with Inner Mongolia-based Hengtai Securities Co. on setting up an investment banking joint venture, while South Korea’s Samsung Securities Co. (016360.SE) said earlier it was finalizing which domestic partner it is going to team up with.

Citigroup Inc. (C) and Morgan Stanley (MS) are also awaiting regulatory approval for their China joint ventures. Morgan Stanley has a stake in China International Capital Corp, but it is a passive financial investor.

“I’m not surprised to hear of more joint-venture acquisitions by HSBC in local financial institutions rather than in banks,” said Dominic Chan, an analyst at BNP Paribas.

“I think HSBC has been focusing on mainland China and Asia, and this deal is part of its ongoing program to divert effort and capital from Europe and America back to Asia,” he said.

A brokerage in China would add another crucial leg to the bank’s already dominant presence in the country. In China, HSBC has an 18.6% stake in Bank of Communications Co., the nation’s fifth-largest lender by assets; a 16.7% holding in Ping An Insurance (Group) Co. of China Ltd.; 8% ownership of Bank of Shanghai Co., and a 49% stake in HSBC Jintrust Co, a Shanghai-based fund company. HSBC’s 50-50 life insurance joint venture with Beijing-based financial services provider National Trust Ltd. was approved by regulators recently and is set to be up and running in the third quarter.

The lender has also hired investment bankers to advise it on listing on the Shanghai bourse next year, in potentially the country’s first listing by a foreign company. Although based in the U.K., HSBC made a quarter or around US$2.98 billion of its first-half pre-tax earnings from China.

Source: Dow-Jones, 19.08.2009

Filed under: Asia, Banking, China, News, Services, , , , , , , , , , , , , , , ,

Sumitomo Trust QFII custody goes to Citi

Sumitomo Trust and Banking has named Citi Securities and Fund Services sole custodian for its new qualified foreign institutional investor (QFII) programme in China.

Under the mandate, Citi will provide custody services including settlement and safekeeping of assets, corporate action processing, income collection, recordkeeping and consolidated reporting to Sumitomo Trust. It will also offer relationship management, implementation and customer service in both China and Japan.

“As the first Japanese [trust] bank to receive an approved QFII license, the appointment of an experienced and innovative custodian bank was a key priority for us,” says Akira Inoue, a senior manager in the global product management office at Sumitomo Trust. “Through partnership and mutual understanding, we are extremely confident that Citi is the right choice for our QFII programme.”

The China Securities Regulatory Commission approved Sumitomo Trust for QFII status on July 15. As the only Japanese trust bank approved for the programme, it plans to develop a Chinese equity socially responsible investment fund for Japanese investors. Sumitomo Trust is still awaiting investment quotas from China’s State Administration of Foreign Exchange before it begins investing in Shanghai and Shenzhen listed A-shares.

Other Japanese financial institutions with QFII status include Dai-ichi Mutual Life Insurance, DAIWA Asset Management, Daiwa Securities SMBC, Mitsubishi UFJ Securities, Nikko Asset Management, Nomura Securities, Shinko Securities and Sumitomo Mitsui Asset Management.

In March Citi won a QFII custody mandate from South Korea’s Hanwha Investment Trust Management. According to a representative of the bank, it has eight existing QFII custody mandates and a “healthy pipeline” of new business in the works.

“In winning this important mandate, our unmatched track record in providing services for the most progressive QFII participants continues to gain momentum,” says Harle Mossman, Asia-Pacific managing director and regional head of investor services at Citi Securities and Fund Services.

According to the bank, Sumitomo Trust’s vetting process for a QFII custodian took less than a year.

For the 2008 fiscal year, Sumitomo Trust’s consolidated net income fell 74.3% to ¥7.9 billion ($83.6 million). A significant contributor to the fall was the bank’s multi-billion yen securities losses, including ¥57.4 billion in international asset-backed securities.

Source: AsianInvestor.com, 27.07.2009

Filed under: Asia, China, Exchanges, Japan, Korea, News, , , , , , , , , , , , , ,

Credit Card Crisis: Banks rush to emergency rescue of credit card trusts/securitisation vehicles

Credit card issuers have had to resort to extreme measures to keep their businesses alive as US consumers buckle under the weight of the recession. Record credit card losses are pushing big US banks to come to the rescue of off-balance sheet vehicles they use to transform hundreds of billions of dollars in consumer loans into securities sold to investors.

The support provided by Citigroup, Bank of America, JPMorgan Chase and American Express underscores how the deteriorating health of the US consumer is opening new fronts in the financial crisis.

Losses on US credit cards as measured by Moody’s Credit Card Index rose beyond 10 per cent of total loans outstanding in May, a new high in the 20-year history of the index and the sixth consecutive monthly record.
Most credit card loans are placed into pools – structured as trusts – that are used to back bonds sold to investors. Banks rely on such “securitisations” to fund their huge levels of credit card lending while keeping most of the risk off their books.

Although they are not obligated to support the pools of credit card receivables when losses mount, banks have done so to ensure investors continue to buy such securities.

The doomsday scenario facing banks is that credit card losses will rise to levels that force the vehicles to repay bondholders early.

Banks have been supporting card trusts by issuing – and then buying – bonds that would absorb the first layer of losses in the underlying loans. This is designed to provide a protective buffer for existing bondholders.

BofA bought $8.5bn of junior debt from one of its trusts in the first quarter and put aside $750m to cover losses on the investment.

Citi bought $265m of so-called junior debt from one of its credit card trusts in October and an additional $2.3bn of junior debt from the same trust in April, according to a regulatory filing. JPMorgan and Amex also have issued new junior debt for their credit card trusts.

In addition, JPMorgan has supported credit card bonds issued by Washington Mutual – the troubled lender bought by JPMorgan last year – by substituting its own credit card loans for WaMu’s lower quality ones.

The loss rate on the WaMu pool was 14.8 per cent in October. By comparison, a JPMorgan credit-card pool had an 8.1 per cent loss rate in May.

Source: Financial Times, 24.06.2009 by Saskia Scholtes and Francesco Guerrera in New York

Filed under: Banking, News, Risk Management, Services, , , , , , , , , , , ,

Japanese regulator slams Citi AML systems – Stop Sales Operations in Japan

Japan’s financial regulator has ordered Citi to stop sales operations at its retail division for a month after the banking giant failed to improve poor anti-money laundering systems.

The Financial Services Agency says there are “fundamental problems” with Citi’s compliance and governance system, which is inadequate for monitoring suspicious transactions.

The FSA has publicly upbraided Citi in the belief that the US bank failed to catch and report money-laundering by a Japanese yakuza criminal syndicate.

FiNETIK recommends

Citibank Japan reprimanded by regulators (The US bank is punished for inadequate internal controls in the third such disciplinary action since 2001), FinanceAsia.com, 29.06.2009

The watchdog says Citi has not sufficiently carried out a business improvement order it was given in 2004, when it was told to shut down its private banking arm for similar failings.

The FSA says “control systems necessary for the detection, monitoring, and follow-up of suspicious transactions have not been developed” and that “despite the fact that it mainly relies on screening based on the database, input data is extremely limited; in addition, the database has not been updated since 2004”.

The regulator also slammed Citi’s management in the country, accusing it of a “lack an understanding of the rules applied in Japan”. Despite establishing an internal audit department, the bank has not accurately identified a series of problems.

The bank has now been told to submit business improvement plans by 31 July which should be executed immediately, with a progress update provided on every three months.

In a statement, the bank says: “Citibank Japan takes this administrative action very seriously and would like to express our sincere apology to our customers and other parties concerned. Citibank Japan is committed to implement all necessary measures to prevent any future occurrence of the problems identified.”

Citibank Japan operates in 35 locations and two Internet-only branches throughout the country.

The FSA rap comes just days after it emerged Citi has suspended loan applications at its correspondent division in the US after a review found some property appraisals and income-verification documents were missing.

Source:Finextra, 26.06.2009

Filed under: Banking, News, Risk Management, Services, , , , , , , ,

Mexican Senate to limit Excessive Credit Card charges by foreign banks, observed by U.S. Senate

[16.04.2009] Mexico’s Senate banking committe approved changes to the financial services law. The Central Bank will be allowed to set limits on the rates that commercial banks can charge on loans.

Banco de Mexico will not set of specific limits to rates; instead, the central bank will set references as to how much banks should be charging for the loans and also have the ability to highlight to the public which banks are charging more than others. “Banco de Mexico will ensure that institutions give loans or credit in accessible and reasonable conditions, and it will take corrective measures so that operations are offered under those terms,” the bill says.

The initiative will now move to the floor of the Senate. The bill doesn’t specify a maximum interest rate. Instead, it calls for policy makers to cap interest rates if they are deemed to be too high or if they prevent low-income Mexicans from obtaining credit.      The legislation would prohibit banks from charging fees that “distort healthy banking practices,” according to the initiative. Banks wouldn’t be able to charge fees for consulting account balances under the measure.

Source: IXE 16.04.2009

[26.03.2009] Two Mexican Senate committees approved proposals to overhaul financial sector regulations that if passed into law would give authorities greater scope to limit the interest rates and commissions that banks charge their customers.

Mexico is not alone. The U.S. Senate Banking Committee will meet on March 31 to consider pro-consumer credit card legislation.

The current credit cards comissions and interest rates in Mexico, charged by foreign banks are the higest in the World and cause to great concern for social instability, for example:

HSBC                 charges 72% p.a. in Mexico  vs.  16%  in the UK

ScotiaBank     charges 61% p.a. in Mexico vs.  18%  in Canada

BBVA                 charges 80% p.a. in Mexico vs. 25% in Spain

Citi/Banamex charges 77% p.a. in Mexico vs.   9% in the US

According to Mexico Bankers Association (ABM) in 2008 there where  26.2 milion credit card holding individuals, which spend  478 Bn pesos ( 33.7 bn US$).

Credit cards might as well be the next bubble to burst, see the Reuters special on consumer credit concerns.

The Finance Commission and the Legislative Studies Commission approved the bill late Wednesday with the backing of senators from the three largest political parties. The commissions said they hope to submit a final draft to the full Senate as soon as possible, according to a Senate press release.

The measure would then be sent to the lower house. The plan would give the Bank of Mexico greater power to regulate commissions and interest rates, ban fees for checking balances at bank branches and require lenders to offer a basic credit card product without “excessive charges.”

Fees and commissions of close to 56.3 bn pesos (3.97 bn US$) last year accounted for about 27% of banks’ operating income, according to National Banking and Securities Commission data.

Five of Mexico’s top seven banks are owned by foreigners. Banco Bilbao Vizcaya Argentaria SA (BBV) and Banco Santander SA (STD) of Spain, Citigroup Inc. (C) of the U.S., HSBC Holdings PLC  ( HBC) of the U.K., and Canada’s Bank of Nova Scotia (BNS) control 68% of bank loans and 69% of deposits.

Source: El Financiero, El Economista,Dow Jones,Reuters,AFP  26.03.2009

Filed under: Banking, Mexico, News, Risk Management, , , , , , , , , , , , , , , ,

Mexico’s Finance Minister says U.S. Gov. Citigroup stake temporary

March 20 (Bloomberg) — Mexican Finance Minister Agustin Carstens said U.S. Treasury Secretary Timothy Geithner told him the government’s stake in Citigroup Inc. is temporary, a position that will help avoid conflicts with Mexican law.

Carstens said the U.S. bailout of Citigroup has helped strengthen its Mexican unit, Grupo Financiero Banamex SA, and that he thinks the U.S. will relinquish its stake in Citigroup by 2012. That forecast was seconded by Manuel Medina-Mora, the chief executive officer for Citigroup’s Latin American division.

President Felipe Calderon’s government had come under pressure from local lawmakers to force Citigroup to dispose of its Banamex unit after the U.S. Treasury agreed to take a 36 percent stake in the New York-based lender. The finance ministry yesterday said that “foreign government aid programs don’t violate Mexican law.”

“We are living through an exceptional, transitory, temporary period,” Carstens said. “The assistance of the U.S. to Citigroup is helping Banamex.”

Calderon will send a bill to Congress that seeks to maintain a restriction on foreign governments holding stakes in Mexican banks while more clearly stating the permissible exceptions during times of crisis, the finance ministry said in a statement yesterday.

Third Rescue

The U.S. government agreed on Feb. 27 to a third rescue of Citigroup, prompting Mexico’s National Banking and Securities commission to say it would study legal implications of the U.S. government’s stake. Citigroup bought Banamex, Mexico’s second- largest bank, for $12.5 billion in 2001.

The new proposed legislation “would establish with total clarity the exceptions strictly necessary to face crises such as those that present themselves today,” the ministry said.

The proposal would specify that 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.

Carstens also said he wants to see the peso strengthen beyond a 14 peso per dollar exchange rate. The Mexican currency rose 0.8 percent to 14.1318 pesos per dollar at 11:30 a.m. New York time.

Source: Bloomberg, 20.03.2009  Bill Faries  wfaries@bloomberg.net; Valerie Rota  vrota1@bloomberg.net in Acapulco, Mexico

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Mexico: Foreign banks highest charges, lowest services

According to a survey by “La Expansion/CNN” the service quality of the 8 biggest banks in Mexico (Banamex, BBVA-Bancomer, HSBC, Santander, Scotiabank, Banorte, Ixe and Inbursa) scored an average of 6 out of 10 in service quality.

IXE Bank led with 8.6 score as the best and most customer friendly service provider, while CitiBanamex and HSBC where below average.  The 8 banks cover 80% of the Mexican market.

According to the survey the bank clients rated woerse the commisions the banks are charging for the value added (or the abscence of it) by the financial service providers.

See the rating chart below: 10 = excellent, 9 = very good, 8 = good, 7= average, 6 = sufficent, below 6 = failed.

Source: La Expansion, FiNETIK,  19.03.2009

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ITAU denies Citi’s Banamex talks, Banamex prefering Mexican Investor group

Banco Itau, Latin America’s largest lender, denied it’s in talks to buy Citi’s Banamex. Itau “is not negotiating any stake in Banamex’s capital,” Itau said in a statement sent to the Brazilian securities regulator.

Meanwhile, according to the local newspaper EXCELSIOR, Roberto Hernandeza and Manuel Medina Mora have been lobbying with PRI lawmakers and the Calderon administration in an effort to persuade the US government to sell BANAMEX to a group of Mexican investors.

According to the article, the group of Mexican investors could buy up to 30% of the bank, list in the Mexican Stock Exchange between 30-40% of the company and get a credit line from either the government or another bank for the remaining stake.

Source: IXE Casa de Bolsa, 05.03.2009

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FiNETIK and the latest on ITAU / Banamex / Citi

Via the Finetik blog linked here, your info-hungry Otto finds out that Banco Itau (ITU) sent an official communication to the Brazilian regulators last night stating that Itau “..is not negotiating any stake in Banamex’s capital..”.

Now that doesn’t mean there’s no interest, of course. The ITU honchos have already said they’d be interested purchasers if and when Banamex went up for sale. It does mean, however, that ITU isn’t doing anything proactive right now. This fits with the official Citigroup (C) line that Banamex is not up for sale, of course. This won’t quell the rumours, but it will put a dampener on short-term speculation for sure. However it should be clearly pointed out that none of this addresses the core issue here: As explained previously if the US gov’t takes its 36% interest in Citigroup as planned, C will be breaking the Mexican law and cannot hold onto Banamex as things stand. That’s as plain as day.

Finally, a word of kudos for the people at Finetik; I’ve only recently discovered the blog (which is part of a wider capital markets company that specializes in Latin America as well as Asia) and put it on my RSS, but I’ve been very impressed with the quality of information passed over there. I can thoroughly recommend it and say it would be a good addition to your own RSS feed (or regular bookmarked visit). Here’s the link to the blog’s main page.

Disclosure: I have no affiliation whatsoever with Finetik and have never even spoken to the people in my time. I just think it’s a good blog that covers LatAm finance well.

Source: Inca Kola, 05.03.2009

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Rumor: ITAU to buy Banamex from Citigroup

Marcia Peltier Column at Jornal do Commercio (Rio de Janeiro) says that Itau-Unibanco will announce next week the purchase of Banamex. It also says that executives from brazilian bank are already in Mexico City.

Itau-Unibanco opportunities in US crisis

There are two immediate analyses that Itaú has to do. The first is the sale of Citibank’s’ stake in the credit card processor Redecard. The stake is worth R$ 2.9 bn, at market value. Itáu declared that it is only interested in buying 24 mn shares, which will allow it to be the largest shareholder, with a 26.7% stake. At market value, Itaú will have to pay R$ 573 mn. As Redecard trades at 24x BV, it will mean that, net of tax, Itaú will pay less than R$ 400 mn. Itaú also stated that it would like to find a strategic partner for the rest of the stake. The only bank Itau would feel  fit the bill is HSBC, but we are uncertain if it desires to hold such a stake.

The second immediate opportunity that arises, also due to Citibank’s financial problems, is the sale of Citi’s Mexican bank. According to Mexican law, no foreign government can own a bank in that country. As Citi will have as a major shareholder the government of the United States, the situation forces them to sell their Mexican stake. This would be a very attractive asset for Itaú, as it would assure the bank’s international expansion. However, we expect it to let it pass due to the current process of digesting the merger with Unibanco.

Itau Unibanco are in merging process

Itaú and Unibanco have effectively begun the merger of the two banks. There are no expectations of major lay-offs, as
management expects natural turnover and retirements to decrease the total number of employees. There have been
some reductions in specific areas, but nothing significant enough to affect personnel expenses. By 1H10 the merger
should nearly be over, with only some back office mergers in 2011. According to management, there will be no
significant reduction in the number of branches.

IXE Casa de Bolsa conference call: ITAU

Source: IXE Casa de bolsa, 27.02.2009, 03.03.2009

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