Citigroup could be forced to sell its Mexican subsidiary Banamex as Mexico’s Supreme Court is set to investigate claims that the U.S. government's involvement is illegal, according to a report in the Financial Times.
The U.S. government bailout of Citi has placed the unit in breach of national law, which bars foreign governments from owning stakes in domestic banks, the report said.
The loss of Banamex would be a severe blow for Citi, as the unit accounts for roughly 15 percent of global profit and could be worth some $20 billion, the paper wrote.
If Citi is found to be in breech of the law, it could have similar implications for the likes of AIG, Bank of America and Bank of New York Mellon, according to the FT. European banks such as Royal Bank of Scotland also operate in Mexico’s banking sector and have government investment.
Banamex, or Banco Nacional de Mexico, is the country's second-largest bank and a symbol of national identity as it spent much of its history in state control.
The Mexican finance ministry has previously passed a ruling stating that Banamex’s status was acceptable because the U.S. aid was circumstantial and transitory, the FT said. But opposition senators now say they want the Supreme Court to decide whether that ruling is constitutional.
If the decision goes against the ministry, it could ultimately end in legislation forcing Citi to sell a stake of Banamex or all of it, the FT said, citing experts.
“The Mexican ministry of finance has concluded that we are in compliance with Mexican law ... In addition, our goal is to repay Tarp as soon as possible, and that will put the entire issue to rest,” a Citi spokesperson told the Financial Times.