Citibank--The Confia Acquisition in Mexico
Focus: Organizational Integration, Products, Human Resources, and Global Strategy after Acquisition
On August 12, 1998, Citibank took full ownership and control of the medium-sized Mexican banking group, Confía, dropping the latter's name and logo from the 280 branches throughout Mexico, and from that point on operating it as part of Citibank Mexico. The road that led to this outcome was rocky to say the least, and the fit of the Mexican bank into Citicorp's global organization and strategy was quite different from what would have been expected only months earlier. This discussion describes the sequence of events involved and the ways in which the process was linked to the organizations and people involved. Before starting into the banks' situations and characteristics, an orientation to the time and place is useful.
The Economic Situation in Mexico during 1994-95
Mexico was one of Citibank's main emerging market customer bases in the early 1990s. After a very rocky relationship through the 1980s, when Mexico's government declared an inability to pay its foreign commercial bank debt, including more than $US 3 billion owed to Citibank, the country had finally returned to a positive growth path and was delivering solid profits to Citibank in both corporate/institutional banking and retail banking. Mexico's economy grew at an annual rate of more than 5% during the 1990-1994 periods. However, the problems of an overvalued currency, heavy inflow of financial investments into high-yield Mexican securities, and political events in 1994 produced a dramatic decline of confidence in Mexico. Mexican and foreign investors saw the January uprising in Chiapas against Mexico's central government, and then the March assassination of the designated presidential candidate (Luis Donaldo Colosio) of the main political party (PRI), as bad news sufficient to cause a massive capital outflow from the country. The Central Bank was forced to use up most of its official foreign exchange reserves during 1994, such that by December there were less than two months' worth of reserves left to cover imports. This situation, coupled with the policy of keeping the peso in a controlled and slow decline in value relative to the dollar, produced the infamous decision to devalue on December 20, 1994. The newly elected government of Ernesto Zedillo shifted the peso/dollar band 15% lower, touching off another huge speculative outflow of funds. A subsequent decision to let the peso float freely against the
dollar complicated matters and the peso dropped from 3.4 pesos per dollar to more than 7 pesos per
dollar, where it remained for most of 1995.
This preceding series of events, called the Tequila Crisis, affected Citibank and all other banks in
Mexico very directly and very negatively in 1995. Obviously, for foreign banks such as Citibank, the
devaluation of the peso meant that...