LATIN AMERICAN MARKETS
Mexican peso hits new low; regional equities mixed
Increased U.S. stake in Citigroup heightens fears about its Banamex stake
By
Carla Mozee, MarketWatch
Last update: 5:29 p.m. EST Feb. 27, 2009
LOS ANGELES (MarketWatch) -- Mexico's currency on Friday stumbled to a new all-time low, pressured by concerns about the fate of Banamex, one of the country's largest banks, after the U.S. government agreed to raise its stake in its troubled parent firm, Citigroup Inc.
Across the region, equities were mixed but still on track to post losses for the week and the month.
Mexico's currency pierced through the psychological level of 15 pesos per U.S. dollar, reaching a low of 15.217 after the U.S. agreed to raise its stake in troubled bank Citigroup Inc.
Citigroup owns Banamex, Mexico's second-largest bank measured by asset. Market players are watching for word that Citi may have to give up a portion or all of Banamex. Mexican law prohibits banks in the country to be run by any entity that is owned by a foreign government or sovereign wealth fund.
"The officials in Mexico are still trying to figure out a solution," said Nick Chamie, global head of emerging markets research at RBC Capital Markets.
"There are a lot of possibilities that could materialize," Chamie said in a telephone interview. "A local investor could end up buying it and there could be a large dollar outflow to Citibank. Maybe the government could give Citigroup a pass and say, 'This is going to wreak havoc on our foreign exchange markets if you're forced to sell it.'"
Chamie said the Banamex situation has influenced action in the peso particularly because liquidity has been thin. If Citi does end up selling Banamex to a local investor, he said the peso could fall to the 16 to 17 level against the greenback "in a heartbeat."
If Banamex stays with Citigroup, the peso could "be at 14 very quickly," said Chamie.
Banamex said Friday that the larger equity stake by the U.S. in Citigroup doesn't violate Mexican law and that there won't be any change in the company's strategy, according to a Reuters news report.
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