A simpler Citigroup begins to take shape
Summary
CEO Jane Fraser is moving closer to a spinoff of Mexican consumer bank Banamex.
Citigroup is nearing an important milestone in efforts to spin off its Mexican consumer bank, an important part of chief executive Jane Fraser’s turnaround strategy.
The bank said it would complete a split next week of the systems that underpin Banamex from the rest of its operations in Mexico. That is a precursor to its plan to list Banamex on U.S. and Mexican exchanges in late 2025 or after. Citi plans to unload a slice of its stake through an initial public offering, then continue to sell the rest of its holdings over time.
Banamex, with nearly 20 million customers and revenue of more than $4.7 billion in the first nine months of this year, is the biggest of 14 international consumer-banking businesses Fraser is shedding.
In doing so, she plans to simplify the bank’s structure and focus on multinational companies and wealthy individuals. Fraser hopes that deepening ties to these core clients will help pull Citi out of a 15-year slump. Citi’s share price has badly trailed peers and is still more than 80% below its record high.
“The spinoff will free up capital to reinvest in some businesses that generate higher returns," Citi finance chief Mark Mason said. “Does Banamex fit the strategy? It’s a great business, but no. We look at it as the further simplification of the company. Simpler model, less to focus on."
Shedding Banamex has proved more complicated than Fraser and her team bargained for. After Citi announced plans to sell it, Mexico’s then-President Andrés Manuel López Obrador said the buyer would have to be Mexican, protect employees from job cuts, pay taxes on the sale and keep Citi’s prized collection of Mexican artwork in the country.
As Citi closed in on a deal, López Obrador seized part of a railroad controlled by the would-be buyer, German Larrea’s Grupo Mexico, and suggested his government might bid for Banamex. When a potential agreement with Grupo Mexico fell through, Citi said in May 2023 that it would focus on the IPO.
About a year later, Fraser traveled to Mexico to meet with López Obrador’s successor, Claudia Sheinbaum, before the then-president-elect took office. Fraser reinforced Citi’s commitment to remaining in Mexico through its corporate-banking and wealth-management businesses. And the art collection, which includes works by Frida Kahlo and Diego Rivera, isn’t going anywhere, Citi executives have said.
Banamex is one of Mexico’s largest banks, helping differentiate Citi from its domestic peers as a global financial institution. Fraser’s predecessors considered the unit the crown jewel in the strategy and resisted the urge to sell it, even in the depths of the 2008-09 financial crisis. Banamex remained a stalwart contributor to Citi’s bottom line for years even as other parts of the company struggled.
Banamex accounted for about 8% of Citi’s total revenue in the first nine months of 2024, not far off the $4.96 billion Citi’s entire corporate- and investment-banking business produced in the same period.
Fraser and her team determined that Banamex and the other international consumer businesses didn’t help Citi deepen ties to the large global companies most of its other divisions serve.
Apart from addressing its regulators’ demands for modernizing its internal systems and data management, there is no bigger priority for Fraser’s turnaround plan than hitting the target she set for lifting Citi’s return on tangible common equity to 11% to 12% by the end of 2026. Citi has lagged behind most of its biggest peers on this score, which measures how efficiently banks earn their profits. For the first nine months of 2024, Citi returned 7.2%.
By shifting the $3 billion to $4 billion in capital that is supporting Banamex to higher-returning businesses—such as transaction services, credit cards and wealth management—Citi said it should lift its overall returns. Buying back its own shares would have a similar effect.
Because investors tend to assign a higher value to companies that generate higher returns, the same steps should raise its stock price.
Mason said Citi remained open to selling Banamex outright, or finding an anchor investor to take a stake. “If that’s something that comes up, we’ll examine it," he said, adding that it is too early to say how the Mexican government might respond.
Citi expects to sell 15% to 20% of its Banamex stake in the IPO, depending on market conditions.
Write to Justin Baer at justin.baer@wsj.com
