Mexico's two biggest banks and most prolific securitizers - Banco Nacional de Mexico S.A. (Banamex) and Grupo Financiero Bancomer S.A. - are contemplating a merger. Banamex has presented a proposal to Bancomer's shareholders to merge both institutions through an exchange of shares.

Since 1996, both banks have issued over $1 billion in notes backed by credit card securitizations. The transactions feature a strong structure, financial guarantees from triple-A rated MBIA-Ambac International and a diversified pool of receivables, which made them attractive to local and foreign investors (ASRI 12/12/1999 p.3).

Sources agree that the possible merger would not endanger the deals in any way. "The covenants of the transaction will be respected by whoever takes over," explained Gary Kochubka, director of the Latin American structured finance group at Standard & Poor's in New York. "The deals are very strong and have financial guarantees in place so investors have nothing to worry about."

However, the merger could have an impact on future credit card securitizations. If they join forces, Banamex and Bancomer would have a 60% market share. If Mexico's regulatory authorities approve the fusion, it would mean a higher volume of assets and might lead to more securitizations.

At the same time, if the banks merge there could be some divestiture of assets. "I'm not sure how that could impact the credit card business," said Kochubka. "But it is possible that a divestiture of assets could bring a smaller player into the market, which could create competition."

On the other hand, if the merged entity sees a ratings upgrade, future credit card securitizations less likely. Following the merger proposal, S&P revised Banamex's outlook to positive. Added to Bancomer's BB-plus ratings and Mexico's improving economic environment, this could make straight debt issuance more appealing than asset-backed deals. "There is a distinct possibility that the banks will choose to do a straight corporate," said Ricardo Laranaga, vice president of external finance at Bancomer. "If the ratings are there it might not make sense to pledge our assets."

At this point, the discussion is mostly speculative. Banamex's merger proposal faces stiff competition from Spanish bank Banco Bilbao y Vizcaya, which is also biding for Bancomer. "It's hard to say what's going to happen," said Kochubka. "BBV has some time to give a rebuttal bid, once it does things will become clearer."

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