The Citibank Acquisition of Confia in Mexico Essay

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Citibank--The Confia Acquisition in Mexico

Focus: Organizational Integration, Products, Human Resources, and Global Strategy after Acquisition

Introduction

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
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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.

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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 earnings in Mexico were worth about half as much in dollars.

More significant, however, was the impact on bank clients, whose dollar debts multiplied to twice

their previous value in pesos in 1995. Loan defaults skyrocketed, and most of the Mexican domestic

banks found themselves in positions of insolvency, not just illiquidity, by the end of the

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