Grupo Financiero BBVA Bancomer S.A.

views updated

Grupo Financiero BBVA Bancomer S.A.

Avenida Universidad 1200
Mexico City, D.F. 03339
Mexico
Telephone: (52) (55) 5621-3434
Toll Free: (800) 112-2999
Fax: (52) (55) 5621-3932
Website: http://www.bancomer.com.mx

Public Company
Incorporated: 1932 as Banco de Comercio, S.A.
Employees: 25,704
Total Assets: ($40.8 billion) (2002)
Stock Exchanges: Mexico City OTC (ADRs)
Ticker Symbols: GFBBO; GFBW Y
NAIC: 522110 Commercial Banking; 522210 Credit Card Issuing; 522291 Consumer Lending; 522292 Real Estate Credit; 522293 International Trade Financing; 523110 Investment Banking and Securities Dealing; 523120 Securities Brokerage; 524210 Insurance Agencies and Brokerages; 524292 Third Party Administration for Insurance and Pension Funds; 525110 Pension Funds

Grupo Financiero BBVA Bancomer S.A. is the second largest financial group in Mexico and includes the nation’s largest bank, Bancomer. It is 51 percent owned by Grupo Banco Bilbao Vizcaya Argentaria S.A. (BBVA), a Spanish-based multinational financial group. In addition to the bank—which provides a variety of services for both individuals and corporations—other subsidiaries offer investment banking, trust management and asset appraisal; buy and sell securities and manage mutual funds; design and market insurance products; manage annuities under Mexico’s retirement pension system; and provide bonding services.

A Great Half Century: 1932-82

Banco de Comercio, S.A. (Bancomer) was founded in Mexico City in 1932 by Salvador Ugarte, Raul Bailleres, Liberto Senderos, Mario Domínguez, and Ernesto Amescua, with Ugarte holding about two-thirds of the shares, possibly for other investors. In all, there were 28 original investors who put up capital of 500,000 pesos. The bank opened with 16 employees.

Bancomer established affiliated banks in Puebla and Guadalajara in 1934, in which it held 51 percent of the shares and local interests, the remaining 49 percent. When the Puebla bank fell victim to fraud the following year, it turned to a former U.S. consul residing there, William Oscar Jenkins. Jenkins rescued the bank and became one of its leading shareholders. He exchanged the shares for those of the parent company in 1942 and subsequently bought more. An investment bank was established in 1945 to support industry by floating and selling bonds and other financial instruments.

The picaresque Jenkins (originally William Oscar Jenkins Biddle) was born in Tennessee in 1878 and came to Mexico about 1900, shortly after selling someone a nonproducing mine. He married an American widow in Puebla and, with her savings, opened a store where they worked together. After work she boarded a trolley home, while he ran alongside to save the five-centavo fare. The change in his fortunes came after he was appointed U.S. consul in 1917, during a period in which Mexico was convulsed by revolution and the United States twice sent armed forces into the country. Two years later, Jenkins was kidnapped and held for 300,000 pesos in ransom. In his history of Mexican banking, Miguel Angel Granados Chapa supports the allegation that Jenkins arranged the kidnapping himself, correctly counting on the Mexican authorities paying the ransom rather than risk another intervention by Washington. Ransom money appears to have been the capital Jenkins used to establish a company that became the largest producer of sugar and alcohol in Mexico during the following decade. In the 1930s he founded Mexico’s largest chain of movie theaters.

Manuel Espinosa Yglesias, a Puebla native, joined Jenkins’s employ as an office boy in 1931 and worked his way up to partner. At Jenkins’s request, Espinosa was named to the Bancomer board in 1950. Espinosa acquired for Jenkins the 10 percent stake in Bancomer held by Manuel Senderos, son and heir of Liberto Senderos, paying for the purchase with some of the bonds held by Jenkins in the Mexican government’s development bank. Jenkins now had majority control of Bancomer but realized that, as a foreigner, he would not be allowed to take its helm. In 1955 he sold Espinosa his bank shares in exchange for Espinosa’s stake in the movie-chain properties. When Jenkins died in 1963, he left his fortune of some 500 million pesos (about $40 million) to a foundation, directed by Espinosa, which in turn invested in Bancomer.

Espinosa Yglesias did not assume the presidency of Bancomer until 1959, but he took charge immediately. Bancomer at this time was second to Banco Nacional de Mexico (Banamex) in size, with 18.5 percent of all bank deposits and 1,700 employees, not counting another 3,100 working for its affiliates. These included the investment bank, a mortgage bank, and an insurance company. But the former two were actually owned by Bailleres and the latter by Senderos. Espinosa felt that Bancomer was funneling customers to these affiliates without sufficient profit to itself. Accordingly, he acquired a small investment bank, renaming it Financiera Bancomer. Similarly, he purchased a struggling insurance company and merged it in 1957 with Seguros de Mexico, S.A. de C.V., the nation’s largest insurance company. A mortgage bank founded by Bancomer in 1957 became Mexico’s largest. Inmobiliaria Bancomer, a real estate company, also was established in 1957. Bancomer opened an office in New York City in 1955 and Madrid in 1956. It had 164 Mexican branches at this time.

More than 200 more Bancomer branches were opened between 1957 and 1964. The establishment of affiliate banks in the states of Nayarit, Tabasco, and Yucatan between 1957 and 1961 completed the bank’s reach throughout all sections of Mexico. The company opened a new headquarters in downtown Mexico City in 1964, with 37,000 square meters (398,000 square feet) of space. Arrendedora Bancomer, founded in the early 1970s as a loan company, made the majority of its loans for industrial machinery. Bancomer also had established a brokerage house by this time. The number of its affiliated banks grew from 20 in 1954 to 37 in 1976, its assets from 2.1 billion pesos ($168 million) to 103 billion pesos ($5.21 billion), and the number of its employees from 4,500 to 21,500.

Bancomer also was playing a direct role, through board representation, in about 30 Mexican industrial enterprises, including chemical, construction, and mineral companies. In his 1989 book Entrepreneurs and Politics in Twentieth-Century Mexico, Roderic Camp wrote, ’ Over and over again the leading firms, the largest groups, and the most powerful families appear on the board of Bancomer. ... Many of the individuals on the Bancomer board are in turn related to other board members by marriage, so that long-lived companies seem to have incestuous leadership from one generation to the next. Equally interesting is the fact that Bancomer is well represented on other bank and insurance company boards.... On the other hand, it is easier to determine its competitors by who is excluded, namely the Banamex chain.”

Bancomer’s 34 affiliated regional and local banks, plus its mortgage and investment banks, were consolidated into the parent company—renamed Bancomer, S.A.—in 1977. The consolidated bank was Mexico’s largest, employing 28 percent of all bank personnel, controlling 24 percent of total private-bank deposits, and holding 23 percent of all bank branches. When Bancomer went public in 1978, Espinosa Yglesias sold 17 percent of his stock—the largest sale of stock in the history of Mexico City’s stock exchange. Offices were established in 1976 in Los Angeles and London and in 1978 in Sao Paulo, Tokyo, and the Cayman Islands. The Manhattan office moved in 1977 to a newly purchased building on East 54th Street. Headquarters, formerly spread over 17 sites in Mexico City, were concentrated in a 122,000-square-meter (1.31-million square-foot) center in the city in 1980. Built at a cost of 1.6 billion pesos ($70 million), it was capable of housing more than 8,000 of Bancomer’s 25,000-odd employees. In all, there were 669 Bancomer bank branches in Mexico at the end of 1980. Subsidiaries included insurance, leasing, brokerage, and real estate companies.

Surviving Nationalization, Avoiding Collapse: 1982-2000

Bancomer, like Mexico’s other nongovernment banks, was nationalized in 1982 after the country’s foreign debts resulted in a huge peso devaluation. In 1984 the banks were partly privatized by selling such subsidiaries as insurance companies and stock brokerages to former holders of bank shares who had been issued indemnity government bonds to compensate them for the takeovers. The privatized parts amounted to a parallel banking system that was more lucrative than the banks themselves, which under nationalization had high fixed costs and were engaged chiefly in financing government borrowing. In 1987 the government sold off 34 percent stakes in the three biggest banks—Banamex, Bancomer, and Banca Serfin—at bargain prices. At this time Banamex and Bancomer each accounted for roughly one-quarter of the commercial banking system’s assets.

Bancomer’s functionaries, although under government supervision, made efforts to remain responsive to their customers. The first Bancomer ATM machines capable of more than just paying out cash appeared in 1982; an improved credit card appeared the following year. A computer system linking the bank with the treasury departments of large enterprises was introduced in 1984, as was a bank-by-telephone system. A high-yield investment fund offering immediate liquidity was established in 1985, and a point-of-sale system using Bancomer credit cards came into operation the same year. Arrendedora Bancomer, the equipment-leasing company, flourished, its revenue reaching 314 billion pesos ($126.45 million) in 1989. It held 20 percent of the Mexican market at this time, competing against 26 other firms.

Company Perspectives:

Mission: To generate trust by serving our clientele better, with candor and integrity, and by always offering products and financial services of high quality. To provide our customers with the best conditions for their integral development. To stay solvent and offer attractive returns to our shareholders. To support social well-being as a result of business activity.

The federal government, in 1991, sold 51 percent of Bancomer for $2.55 billion to a group of investors from the financial-services group Valores de Monterrey (Vamsa), which was owned by Visa, one of Mexico’s largest conglomerates. Visa was controlled by Monterrey’s prominent Garza Laguera family, with Eugenio Garza Laguera, its president, a fourth generation member of the Garza Sada family that collectively formed the Monterrey Group. The purchasers of Bancomer’s majority stake also won an option to buy up to 25 percent more of Bancomer’s stock for an additional $1.3 billion.

Bancomer was at this time Mexico’s second largest bank, with assets of $25.9 billion, $4 billion less than Banamex. It had about 760 branches, compared to 725 for Banamex, was first in employees, with 39,051, and held 26 percent of all Mexican bank deposits. Bancomer was also regarded as better able than Banamex to serve the country’s retail and mid-level corporate customers. Bancomer forged further ahead of Banamex during the year after its privatization by completing a conversion of 400 branches to full online automation segmented to target local-market needs. The number of its credit cards grew by 40 percent, its mortgage loans by 108 percent, and its consumer loans by 176 percent in 1991. In 1992 Bancomer, S.A. was renamed Grupo Financiero Bancomer, S.A. de C.V.

Bancomer restructured its banking operations in 1994, creating five autonomous units within the bank, each with its own management and profit targets. With 831 branches, it was dominant in automobile loans and in small- and medium-sized company customers, who comprised about 75 percent of its commercial-loan portfolio. The downside of this concentration at the lower end of the retail and commercial markets was a sharp increase in the group’s lost-loan expenses.

A sizable national deficit in 1994 led to a panicked flight from the peso by investors late in the year. The resulting devaluation and sky-high interest rates engendered a recession that left Mexicans unable to make payments on their loans. In order to keep the banks from collapsing, the government established a fund—estimated at $100 billion—to exchange their bad debts for government bonds. All Mexico’s banks suffered, but Bancomer, in the opinion of some analysts, fell behind its nemesis, Banamex. “Both banks were technically insolvent in 1995,” Phil Guarco of Moody’s Rating Service told Simeon Tegel of LatinFinance in 2000. “Banamex and Bancomer had very similar franchises and should have come out similarly from the crisis. But once the new accounting [regulations] came in [during 1997], it became evident that Banamex’s loan portfolio was bad, but not as bad as Bancomer’s.”

Canada’s Bank of Montreal acquired a 16-percent stake in Bancomer in 1996, paying only $20.3 million in cash. The rest of the sum—estimated at between $573.8 million and $641.3 million—came in the form of purchases of government bonds. The government fund then forwarded this sum to Bancomer in the form of cash. The Bank of Montreal vowed to help Bancomer with hands-on support in such areas as cash management, retail and corporate banking, investment banking, and trade finance, helping to modernize its operations and boost its overall efficiency. The Bank of Montreal’s ownership of Chicago-based Harris Bank promised to aid Bancomer in its desire to establish full-service bank connections with clients in the United States and Canada. Bancomer had about 20,000 private banking customers at this time.

Under Foreign Control: 2000-2002

Bancomer became the biggest financial group in Latin America in terms of assets in 2000, when it was acquired by and merged into Grupo Financiero BBV-Probursa, S.A. de C.V. A Spanish bank, Banco Bilbao Vizcaya Argentaria (BBVA), had in 1995 purchased the Mexican bank Banco Mercantil Probursa to form this enterprise. The Spaniards first bid $1.2 billion for a controlling 32 percent stake in Bancomer, then raised the ante to $2.5 billion in order to forestall a competing bid from Banamex. This sum included $170 million for another Mexican bank, Banca Promex, S.A., which Bancomer had recently bought from the government. The consolidated institution was named Grupo Financiero BBVA Bancomer, S.A.

By late 2001 Bancomer, Probursa, BBVA’s Mexican subsidiary, and Promex, plus their subsidiaries, were all integrated under the Bancomer brand name. Bancomer was named bank of the year by LatinFinance. A company official told the magazine, “We have changed the image of all our branches, we have closed redundant branches, we are operating under one systems platform across all of our businesses. And we have gone through this process without any loss of market share.” Bancomer held 30 percent of Mexico’s banking business compared to 26 percent for Banamex and now had 2,160 branches. But there was a serious cost: some 7,000 of the 42,000 employees of the merging institutions lost their jobs as part of an economy move to reduce expenses by $410 million by the end of 2002. Accordingly, the number of Bancomer branches fell to 1,756 at the end of 2001 and 1,665 at the end of 2002. By the end of 2002 the number of employees had dropped to 25,704.

Key Dates:

1932:: Bancomer is founded by private Mexican investors.
1950:: An American, William Oscar Jenkins, acquires majority control of Bancomer.
1955:: Jenkins transfers his Bancomer shares to Miguel Espinosa Yglesias, his close associate.
1959:: Bancomer is second to Banco Nacional de Mexico (Banamex) among Mexican banks.
1978:: Now Mexico’s largest bank, Bancomer becomes a publicly traded company.
1982:: Mexico’s banks, including Bancomer, are nationalized by the federal government.
1991-92:: Bancomer is 51 percent privatized and becomes Grupo Financiero Bancomer.
1995:: Only a government bailout keeps Bancomer—and other Mexican banks—from collapsing.
2000:: Spain’s Grupo BBVA acquires a controlling interest in Grupo Financiero Bancomer.
2002:: BBVA raises its stake in Bancomer to 51 percent.

The Mexican government, in June 2002, sold its 11.8 percent stake in Grupo Financiero BBVA Bancomer for nearly $850 million. Parent BBVA, through a subsidiary, purchased about one-third of this stake to raise its holding in BBVA Bancomer to 51 percent. The rest of the 1.02 billion shares of stock were sold on the Mexico City stock market and to institutional investors in the United States and Europe through a private offering.

Bancomer ranked second to Banamex among Mexican financial groups in 2002, with sales of 30.67 billion pesos ($3.35 billion). Its total assets came to 428 billion pesos ($41 billion). But, as of 2001, the bank’s sales of 25.92 billion pesos ($2.83 billion) exceeded that of Banamex’s bank. Bank operations accounted for almost 85 percent of Grupo Financiero BBVA Bancomer’s sales in 2001. Its subsidiary for pension-fund management was the largest in Mexico. Its 75 percent-owned insurance subsidiary was the fourth largest in Mexico and its brokerage house was the fifth largest. Bancomer had branches in London and the Cayman Islands, agencies in New York and Los Angeles, and an office in Sao Paulo.

Principal Subsidiaries

BBVA Bancomer, S.A.; BBVA Bancomer Gestion S.A. de C.V.; BBVA Bancomer Servicios, S.A.; BBVA Bancomer Servicios Administrativos S.A. de C.V.; Casa de Bolsa BBVA Bancomer, S.A. de C.V.; Fianzas Probursa, S.A. de C.V.; GFB Servicios, S.A. de C.V.; Pensiones Bancomer, S.A. de C.V.; Seguros Bancomer, S.A. de C.V. (75%).