La Caixa Enters the Americas under the Helm of Magnate Carlos Slim
Mexico is quite important for those Spanish financial institutions -- BBVA-Bancomer, Santander-Serfin and Caja Madrid -- that have contributed significantly to the gradual spread of banking in that country. It is not surprising that Criteria, the holding company for La Caixa, has chosen Mexico as the place to begin its thrust into the Americas. It is even less surprising that it has done so by hooking up with Inbursa, one of the country’s largest financial groups. Inbursa belongs to Carlos Slim Helú, the second-richest man in the world according to Forbes magazine.
At the end of May, Criteria announced that it will purchase a 20% stake in Inbursa at a cost of 1.5 billion euros, which will give Criteria two seats on the latter’s executive council. La Caixa will also appoint one member on Inbursa’s board of directors. In so doing, La Caixa has found its opportunity in Mexico. With this purchase of shares, La Caixa will try to duplicate in Mexico the retail banking model that it developed in Spain. It is deploying a strategic plan that focuses not only on Mexico but on Latin America and the United States.
“Using La Caixa’s financial cushion of four billion euros, Mexico is the first stop in the important globalization process that the bank wants to undertake,” says Manuel Romera, head of the Instituto de Empresa’s finance department. Romera believes that this launch represents a move that is “more strategic than currently profitable. It balances the risks, since Mexico presents a market with extremely high potential.” For Mauro Guillen, head of Wharton’s Lauder Institute for Management and International Studies, Mexico was chosen because it is attractive since “it belongs to NAFTA (the North American Free Trade Agreement, the trade bloc comprising Mexico, the U.S. and Canada) and because there are so many Spanish and Catalonian companies in the region.” José Ignacio Galán, director of the University of Salamanca’s departments of Iberoamerican management and corporate social responsibility (CSR), also notes that Mexico’s NAFTA membership is a plus, along with the country’s macroeconomic stability, great prospects for growth, cultural affinity for Spanish companies, and shared border with the U.S.
Jesús Palau, professor of finance and management at the ESADE business school, agrees that La Caixa is attracted to Mexico by “its vast size and by the experience that the Spanish bank BBVA has already had there. Indirectly, La Caixa is coming in order to compete with its Spanish rival [BBVA] in Mexico.” In addition, he believes that this particular plan is fundamental to La Caixa’s globalization strategy. “In Latin America, there is a very significant business in transfer payments from immigrants. Having a good network in a country like Mexico means reproducing a business model that began in Spain twenty years ago.” “They also want to gain [operational] scale,” he adds.
Officially, Mexico has become a platform for expanding from Spain towards the United States, “although [Spanish banks] could do that without necessarily passing through Mexico,” says Galán. “We cannot anticipate” what will happen in the medium term, he adds, because the bank [La Caixa] won’t have any residual rights to take [corporate] decisions so “there is no feasible way to anticipate anything.” “In addition, as the great economist Joseph Schumpeter used to say, the business world is constantly changing, especially in today’s times of technological revolution, globalization and global economic crisis.”
A Global Strategy
The arrangement makes sense for both institutions, the experts say. For La Caixa, it makes sense because Inbursa will become a launching pad for its expansion into the retail banking business in the Americas, with the help of one of the region’s strongest partners. For Inbursa, the deal makes sense because La Caixa’s arrival will enable Inbursa to strengthen its capital base and promote its growth both within and outside its borders. In addition, it will enable Inbursa to expand its business activities -- now focused on securities, pension plans, and private and investment banking –- into the market for individual investors, by taking advantage of La Caixa’s experience in that area. By buying into Inbursa, La Caixa takes a new and important step in its international strategy, which targets Asia (where it already owns 9% of The Bank of East Asia in Hong Kong); America; and Central Europe. According to Romera, “Perhaps the success that BBVA has had in Mexico has been the reason why La Caixa was motivated to move ahead in that country. However, La Caixa starts by already having a very international approach to its business. The truth is, I am surprised that they have begun in Mexico because their president, Isidro Fainé, has always been very interested in Asia.”
According to Galán, La Caixa is going to bring “experience and know-how, along with the participation of two corporate directors and a member of the executive board. However, residual rights of control will continue to be held by the Slim family; it now has 60% [of those rights] compared with 66% before the deal. From my point of view, the Slim family is perhaps the main beneficiary.” Galán provides the following reasons for his assessment: First, “this deal enables the [Slim] family to make its business more profitable by bringing experience and the incentive of ownership. Second, it permits the family to enter into a relationship with a corporate group that owns shares in some outstanding corporations that are competitors in its core business.” For La Caixa, the deal seems attractive because the Slim family controls “six percent of Mexico’s GDP, and it [La Caixa] could sharpen up its long-term strategy while also acquiring experience that it [later] uses for directly entering the U.S.,” adds Galán. Long term, he believes that La Caixa could also reach strategic agreements in specialized markets. “The only thing that does not look right in this entire plan are La Caixa’s investments in Asia (The Bank of East Asia), which lack business logic, cultural affinity and synergies,” continues Galán.
According to Galán, one possible way to expand both holding companies would be “to take the road toward specialization, while establishing synergies in the structure of future ownership. This is something complex and it is always subject to the laws of the market and to regulations.” Another possibility is to take advantage of the current crisis in the U.S. to invest directly in that country. “Now is a good time for the Spanish banking sector to invest for four reasons: The dollar is cheap; the financial sector in the U.S. has been badly hurt by the subprime crisis; there is a clear cultural affinity with Spanish companies that will facilitate the adoption of [Spanish] ways of doing business [in the U.S.]; and forecasts call for a change in government that will favor opening up and a re-stimulating the [U.S.] economy,” notes Galán.
In recent years, Mexico has become the Promised Land for foreign banking institutions because of the privatizations that began during the 1980s and 90s. With a potential market of 110 million customers, the financial sector is controlled by Bancomer (BBVA), which manages assets worth 53.7 billion euros; Banamex, owned by Citi, with 43.1 billion euros; and Santander-Serfin, with 30.2 billion euros. In a country characterized by an enormous gap between the very rich and the very poor, there is a strong potential for private banks as well as retail banking. “They [the Spanish banks] like Mexico’s geo-strategic position, its democratic system, its relationship with the United States, its development…,” notes Romera. These days, many Americans choose to retire in Mexico. It has become one of the favorite destinations for retirees, along with Florida, because of its resorts and its healthy climate.
By forging an alliance with Carlos Slim, La Caixa pursues the goal of developing its retail banking model in Mexico. For its part, Mexico plays a role as the port of entry for Spanish savings institutions throughout Latin America. Santander, headed by Emilio Botín, is another major player in the region, where it controls Banco Real and Banespa in Brazil. “All the Spanish financial institutions that are in Mexico have demonstrated they know how to develop and manage the market. Mexican banks can learn from Spanish banking that way,” notes Romera.
Experts believe that bringing together La Caixa and Slim will have an additional appeal for Slim, the most powerful man in Mexico. Slim is the owner of both Telmex and América Móvil, and he is the fiercest rival of Telefónica, against which Slim has fought dozens of business battles. The odd thing is that La Caixa, which is going to strengthen Slim’s empire with 1.5 billion euros and its retail banking skill, is, along with BBVA, the largest Spanish institutional investor in Telefónica. La Caixa owns 5% of Telefónica, worth about 4.5 billion euros. It also has two important posts on its executive committee, one of which has been occupied since 1994 by Isidro Fainé, who is also a vice president of that telephone company. “Slim is one of the richest people in the world,” says Romera. “Anyone would want to do business with him. I don’t think there is anything else going on here.”
According to Guillén, “Relying on a local partner can help La Caixa take its first steps toward internationalization.” He also notes that La Caixa, like other Spanish financial institutions, must globalize. “This is about their first steps, from which they will learn a lot of things,” he affirms. For Palau, the connection between Slim and La Caixa makes all the sense in the world. “Carlos Slim knew the investment and corporate banking market very well. Nevertheless, he didn’t know about commercial distribution on a retail level. As for La Caixa, it already knows about retail banking. Together, Slim and the Spanish bank [La Caixa] can generate very good synergies,” notes Palau. “La Caixa can learn how to become a good investment bank in Mexico thanks to its collaboration with Carlos Slim.”
Models to Follow
Latin America is a region overflowing with attractive markets in which to begin the corporate globalization process. “In second place [after Mexico], I would go to Brazil, a market where you need to be because of its volume, the activity and the [quality of its] management,” says Romera. He also cites other, more localized markets such as Venezuela, Ecuador and Peru. “However, these countries carry considerable political risk, even if their markets are undeveloped.” If he had to choose three markets, Romera would list Mexico, Brazil and Chile in first, second and third positions. Among the three largest markets – Brazil, Mexico, and Argentina -- “Mexico is the simplest market now because of its proximity to the U.S.” says Guillén. However, Guillén advises La Caixa to think about moving into Brazil “because of its size and growth rate, even if it is a difficult market.” Palau also chooses Brazil for the same reasons. Given its proximity to the U.S., Mexico “would be very attractive place from which to expand into the U.S.,” adds Palau.
Beyond that, Palau says, “I believe all of the [Spanish banks] that want to internationalize are looking into making acquisitions of American banks. It would mean getting a toehold in all the markets that have great growth potential.” For his part, Galán would not advise [Spanish banks to go] anywhere outside the Americas unless “they find an opportunity for some specific reason or special circumstances.” He says that the region is well-controlled and there are some institutions that have a strong brand image and very strong potential. “The best place to enter at this time is the U.S.,” he says. However, he adds that other places also look attractive over the medium and long term for Spanish companies because of their historical, cultural or geopolitical affinities, including the Middle East and Africa. “Russia is another region with enormous potential, although it presents greater risk for Spanish companies, which have to be re-evaluated,” says Galán.
Above all, the experts recommend that La Caixa focus on the strong results that other Spanish banks have achieved from the globalization process. As Galán explains, “BBVA has a large presence in Mexico, and a consistent one from the viewpoint of its business. Santander has figured out the keys to its global expansion policy. It has always run its business with logic, and in a disciplined way that is in the right place at the right moment. Beyond that, Santander has been in Mexico since 1954, the year when it opened its first office in Mexico City. Gradually, Santander figured out how to take advantage of the privatization process as well as the North American Free Trade Agreement, so that it could take over two big companies: Banco Mexicano in 1997 and the Serfin financial group in 2000. In 2002, both of those institutions merged, creating Santander Serfin, which is now one of the top financial institutions in Mexico.”
For La Caixa, the globalization process has already begun. Short term, the experts say, we’ll see whether La Caixa will successfully copy the expansion methods used by other banks such as BBVA. Or on the contrary, whether La Caixa will follow its own path forward. We will also see which foreign destination La Caixa will decide to conquer next; whether it will continue to stretch its tentacles toward Latin America or whether it will change direction and make a new thrust toward Asia, a market that requires everything it takes to be conquered.