Citigroup abandons long-planned Banamex sale to pursue IPO

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Citigroup said it will spin off its Mexican retail bank through an initial public offering, abandoning a plan hatched early last year to sell the unit.

The US lender plans to fully spin off its Banamex division, which has 38,000 employees and is one of the largest consumer banking franchises in Mexico, by the middle of next year. The bank said an IPO of the unit was likely by the end of 2025. Despite the spin-off, Citi plans to keep much of its corporate and institutional business in Mexico.

City executives previously said they pursued a two-pronged process to exit Banamex. The bank said Wednesday it now believes an IPO would be the better route for investors than a sale.

CEO Jane Fraserwhich is leading a broader effort to streamline Citi, said in a statement, “After careful consideration, we have concluded that the optimal path to maximize Banamex’s value to our shareholders and advance our goal of streamlining our firm is to pivot from our dual path approach to focus solely on an IPO of the business.

While it’s not certain what Banamex will get in an IPO, the plan avoids any immediate hits to the bank’s profits and capital that it might have suffered if it completed a distressed sale. Citi also announced it would resume share buybacks by the end of June, at least six months earlier than analysts expected.

Citi shares fell 2.8% in lunchtime trading Wednesday.

“It’s not ideal,” said Mike Mayo, a banking analyst at Wells Fargo who had pushed Citi out of Banamex. Mayo said an IPO gave Citi the ability to revert to a sale if it received a better offer further down the road.

The IPO plan marks the end of a months-long effort to sell the unit. In February, the Financial Times reported that Citi was in exclusive talks to sell Banamex to Grupo México, owned by billionaire Germán Larrea. The deal was expected to value the unit at up to $8 billion. It is not clear why or when these negotiations concluded, nor why the bank did not follow up on offers from other interested bidders.

The Mexican government complicated the process of selling Citi by requesting concessions, including one that would have largely protected workers from layoffs. President Andrés Manuel López Obrador this week said the government was analyzing whether it made sense to enter the bidding process for Banamex if no other deals materialised.

López Obrador said on Wednesday that his government was still considering stepping in and buying part of the bank.

Citi bought Banamex, one of Mexico’s oldest and most prestigious banking brands, for $12.5 billion in 2001 to much fanfare. But it has since moved from the country’s second-largest bank to fourth-largest after struggling to compete in a market dominated by other foreign lenders. Analysts and bankers said a litany of reasons were to blame, including mismanagement and inflated costs due to limitations in US regulatory requirements.

Even so, Citi executives say the rationale for the Banamex exit has more to do with Fraser’s broader strategic “update” than any woes it’s had in that unit.

So far, Fraser’s efforts have largely focused on streamlining Citi’s consumer banking franchises. However, the exit from consumer banking, and especially its retail operations in Mexico, has taken longer than some analysts had hoped. Citi’s plans to withdraw from its global consumer bank were announced more than two years ago, while Banamex’s anticipated exit was revealed in early 2021.