Can Roberto Hernandez Keep The Money Machine Churning?

The view from Roberto Hernandez' Mexico City penthouse was all smog. And the front-page news that December morning was equally discouraging. The Mexican financier had lost his bid to buy phone giant Telefonos de Mexico. But Hernandez leaned back from his desk with the satisfied smile of a billionaire. "I'm very optimistic," he said, predicting he would come away with a prize company sooner or later.

Now, Hernandez has done his deal, and it's a whopper. In a $3.2 billion privatization, he and his partners have won control of Banamex, the country's No. 1 bank (table). Overnight, Hernandez jumps from being the head of a small brokerage outfit with 340 employees, Acciones y Valores, to top gun at Banamex, with 720 branches, 31,797 employees, and a $4.6 billion market value. But Hernandez is taking over just as competition is coming to Mexican banking. "Hernandez is going to have to work much harder now," predicts one European banker in Mexico City.

TUMBLING WALLS. The privatization of the 107-year-old bank--and the high price it fetched--reflect the investor euphoria south of the border. With Mexico preparing to join a North American free-trade agreement, investors foresee dramatic growth. Already this year, the stock market is up 80%. Banamex sold for near the market value of Citibank while boasting only 10% of its assets.If Hernandez plays his cards right, he could cash in. As a nationalized bank since 1982, Banamex has been a money machine. Profits last year topped $341 million, a massive 22.6% return on capital. But if free trade comes, the walls around Mexican banks are sure to tumble. To compete in an open market, Banamex and other Mexican banks will have to relearn the art of retail banking, which has withered in Mexico in recent years. Hernandez is betting that by tying Accival, as his brokerage is known, to Banamex' branch system and computer network he can dominate both the capital and money markets in Mexico.

Reaching the top at Banamex culminates a long climb for Hernandez. Born 49 years ago in the steamy coastal town of Tuxpan, Veracruz, Hernandez grew up far from the equestrian clubs and prep schools of Mexico's power elite. He studied business administration at Mexico City's Universidad Iberoamericana, a haven for the aspiring middle class.

Twenty years ago, Hernandez and his longtime partner, Alfredo Harp, set up Accival, with six staffers jammed in a rented office. Soon, Accival was riding Mexico's oil bonanza of the 1970s. But Mexico's financial problems brought the market crashing down in the early 1980s. Accival crashed with it.

While other Mexicans rushed their savings to Geneva, Miami, and San Diego, Hernandez kept his money at home, buying stocks on the cheap. Within five years, the tiny stock market had multiplied by a factor of 40 in dollar terms. For a few heady months in 1987, Accival had a market value rivaling that of Bank of America. Hernandez was rich again.

HARD KNOCKS. His buy-Mexican strategy paid even higher dividends after Carlos Salinas de Gortari became President in 1988. By the time the Salinas government got around to selling its control of the phone company and the banks, Hernandez and his partners had gathered in enough money to enter the bidding. They were so rich, in fact, that they bid for both Telmex and Banamex. Hernandez, it seemed, had money to bid for anything. "Everyone's scared about getting into a bidding war with Roberto," says one associate of a rival group.

But while Hernandez was building his fortune in stocks, he did take some knocks. In the late 1980s, he paid top dollar for a department-store chain, Paris-Londres, which flopped. Critics said he didn't know how to run a retail business. Last December, he lost Telmex as Carlos Slim, Alfredo Harp's cousin, outbid the Accival group by $70 million.

The next test was Banamex. There, Hernandez lined up against an old-money team headed by Carlos Gomez y Gomez and his brother-in-law, Fernando Senderos Mestre, a friend of Salinas'. Rumors had it that the prestigious Banamex, with its colonial Mexico City headquarters, would go to the aristocrats. But Hernandez and his partners buried their rivals under a mountain of cash, bidding for a much bigger chunk of the bank--nearly 71% compared with their 31%--and offering 12% more per share. Still, Hernandez will have precious little time to savor the triumph. Now, he has got to prove that he has what it takes to be a big-time North American banker.