Citi to Invest $1.5B in Mexico, Enhances Growth Potential

Zacks

With the aim of improving operations in its Mexico-based subsidiary Banamex, Citigroup Inc.’s (C) Chief Executive Officer Michael Corbat announced the investment of 20 billion pesos ($1.5 billion) in the unit’s technology, data centers and physical infrastructure over the next four years.

Further, Corbat said Citigroup targets to increase loans provided to small and medium-size businesses by $4 billion over the same period, and enhance financing to Mexico's growing energy sector by $10 billion.

Though Banamex has disappointed Citigroup this year with the disclosure of fraud worth $400 million in the unit, Corbat’s move aims to tap the available growth potential in Mexico. Notably, Banamex over the past few years has recorded net income of more than $1 billion per year, even during the global financial crisis. Moreover, the unit accounted for more than 10% of Citigroup's yearly profit.

Citigroup operates in numerous markets worldwide. Therefore, Michael Corbat after taking over as Citigroup’s Chief Execution Officer (CEO) in 2012 planned to restructure, reduce or exit some of the operations in 21 markets globally to enhance returns. Though names of such markets were undisclosed, it was intimated that most of these involve consumer businesses.

Since then, Citigroup announced its plans to exit consumer businesses in countries including Honduras, Turkey, Romania, Uruguay and Paraguay. Recently, the bank agreed to vend its consumer-banking businesses in Greece and Spain.

Citigroup is encountering issues from various fronts including the ongoing investigations related to the Mexican fraud and the Federal Reserve’s rejection of its 2014 capital plan. We believe the company is well positioned to resolve its internal inefficiencies and setbacks. Further, we believe these streamlining initiatives will bolster the company’s capital position, reduce expenses and drive operational efficiencies.

Citigroup currently carries a Zacks Rank #3 (Hold). Some better-ranked finance stocks include LNB Bancorp Inc. (LNBB), MidWest One Financial Group, Inc. (MOFG) and German American Bancorp Inc. (GABC). All three carry a Zacks Rank #2 (Buy).

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