Banorte, Ixe sign tentative merger agreement, push geographic, client gains - Mexico

Mexican financial groups Banorte and Ixe have signed a tentative agreement to merge, pending due diligence, the companies said in a joint press release that pushed the potential benefits of the deal in terms of their respective geographic operations and client bases.

The two groups have been in talks over M&A possibilities since the beginning of the month. Together, the new company would become the third largest financial group in Mexico by assets and credit portfolio, displacing Santander Mexico.

Ixe and Banorte remained vague on the details of the deal, saying that the non-binding agreement could "result in a merger, or the design of some integration mechanism that allows [the companies] to create greater value jointly."

The agreement allows for an "exclusivity period to conclude the negotiations" and carry out due diligence.

The release noted that a merger of the two companies would create a powerful financial company by combining Banorte's large branch network in the northern part of the country with Ixe's "significant presence" in Mexico City.

The release said the banks will also complement each other in terms of market segments, as Banorte is a broad-based retail bank while Ixe focuses mainly on high-end and corporate clients.

GOOD DEAL?

As of the end of August, Grupo Financiero Banorte's flagship bank had the third largest credit portfolio in the Mexican market, with 232bn pesos (US$18.7bn), behind Banamex (343bn pesos) and BBVA Bancomer (546bn pesos).

Ixe's flagship bank was in tenth place with a portfolio worth 28.5bn pesos.

Analysts have commented that a merger with Ixe would be a positive move for Banorte since the financial group has a very healthy credit portfolio and is trading below Banorte's price-to-book ratio on the Mexican stock exchange BMV.

However, Ixe has struggled with profitability as of late, with an ROE of around 1%. Bank executives chalk this up to a heavy round of investment in recent years to grow the group's branch network and portfolios.

Banorte has been searching for acquisitions for some time now, buying a private sector pension manager from Ixe last year and flirting with troubled non-bank mortgage lender Hipotecaria Su Casita.

Banorte is the largest Mexican-controlled financial group in a market dominated by multinationals.

Source: www.bnamericas.com