Hey, Pal, Wanna Buy Some Mexican Bank Assets Cheap?
How's this for a garage sale? Eager to recoup some of the heavy cost of rescuing banks after the December, 1994, peso collapse, Mexico is getting ready to put $43.9 billion worth of mortgages, corporate loans, commercial paper, and real estate on the block. It will be the biggest liquidation since the Resolution Trust Corp. auctions following America's savings and loan bailout a decade ago. Now, the Mexican government is hoping a flock of local and foreign investors will be eager to take the assets off its hands at bargain prices.
Some of the assets may prove to be nearly worthless. But Oscar Medina Mora, who heads the Evaluation & Sale of Assets Agency (VVA) set up by the National Banking & Securities Commission, is starting things off by offering a small package of 36 performing loans to Mexican companies, from textile makers to retailers, backed by solid collateral. Medina Mora sent out invitations to bid on the package, worth an estimated $19 million, on May 12, and the winner will be announced on July 9. "It's very important for us to have a good first auction to test the market's response and establish a reasonable price," Medina Mora says.
HUNGRY VULTURES. Banking analysts will be watching to see not only the prices but also who the bidders are. Foreigners are crucial because Mexicans don't have enough cash to buy all the assets. To rev up interest, Mexican states are revising regulations to allow speedier repossession of assets when loans are past due, a process that now averages 18 months. That would help persuade buyers to invest additional capital as equity partners in companies that are good prospects for turnarounds.
VVA's partners in arranging the sales are Banco del Atlantico, a Mexican bank, and Bankers Trust New York Corp. Jose Garca Cantera, a banking analyst at Salomon Brothers Inc. in New York, believes Mexican financial institutions and conglomerates and U.S. "vulture" funds will be among the first to bid. In later auctions, California and Florida real estate investment trusts may bid for physical assets such as land and buildings, hoping to snap them up at distress prices.
Working with a skeleton staff of just 53, Medina Mora will offer packages ranging from home mortgages to high-quality office buildings in Mexico City and Guadalajara and the prestigious Camino Real hotel chain. He figures VVA's portfolio of physical assets with a face value of around $1 billion, including 3,000 houses, can be sold off in four years without depressing local market prices. Most of VVA's $19.2 billion in corporate loans to around 540 companies should be sold within five years, while the $23.7 billion debt portfolio, which includes home mortgages and credit-card debt, could take up to nine years to resolve because of legal disputes. "I'll be here as long as my ulcer can stand it," jokes Medina Mora, a Stanford University-trained mathematician and former Mexican central, commercial, and investment banker.
Besides easing the financial pressure on the Mexican Treasury, the sell-off aims to create a secondary market for corporate and mortgage loans. Eventually, that will allow banks to free up capital for additional lending and help ease Mexico's credit shortage.
"GARBAGE." Medina Mora will have to overcome considerable skepticism among some foreign investors. Thomas J. Barrack Jr., head of Los Angeles-based Colony Capital, one of the biggest vulture investors in the Resolution Trust Corp. sell-off, says he has been making selective investments in Mexico but is not interested in bidding at VVA auctions. The $40 billion in the government's portfolio, he sniffs, is "all garbage." To invest in Mexico, "you have to have the right partner," Barrack adds. "If you don't, you will get a sobering crash course in Mexico 101."
Not everyone agrees with his assessment. General Electric Capital Corp. and the financial giant Cargill Inc. are interested in later auctions. And Medina Mora insists the VVA sell-off will move Mexico toward resolving its banking crisis once and for all. That would open the way for the restructuring of thousands of companies that have been in financial limbo for several years.
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