Grupo Financiero Serfin, S.A.

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Grupo Financiero Serfin, S.A.

Prol. Paseo de la Reforma 500
01219 Mexico City, D.F.
Mexico
(525) 257-8000
Fax: (212) 421-5128 (New York office)
Web site: http://www.infosel.com.mx/serfin

Public Company
Incorporated: 1864 as Banco de Londres, México y Sudamerica
Employees: 19,164
Sales: 59.26 billion pesos ($8.7 billion, 1995)
Stock Exchanges: New York Mexico City
SICs: 4225 General Warehousing & Storage; 6021 National Commercial Banks; 6162 Mortgage Bankers & Loan Correspondents; 6163 Loan Brokers; 6211 Security Brokers, Dealers & Flotation Companies; 6311 Life Insurance; 6321 Accident & Health Insurance; 6331 Fire, Marine & Casualty Insurance; 6712 Offices of Bank Holding Companies

Grupo Financiero Serfin, S.A. is the holding company for Banca Serfin, Mexico’s third largest bank. Dating back to 1864, it has the longest pedigree of any Mexican bank. Banca Serfin provides commercial banking services to individuals and businesses. The Serfin financial group contains other subsidiaries providing such financial services as investment banking, factoring, lease financing, warehousing, and insurance.

European Control, 1864–1936

Two Englishmen, William Newbold and Robert Geddes, founded the Banco de Londres, Mexico y Sudamerica in Mexico City in 1864, acting for the Bank of Mexico Ltd., an English company. It was the first branch of a foreign bank in Mexico and the first Mexican bank to issue checks and notes. The bank opened agencies in ten Mexican cities and also in Cuba, Peru, and British Columbia. Although installed under the regime of Emperor Maximilian, one of the bank’s first transactions was a remittance of 3,000 pesos from London for the account of Benito Juarez, the ousted Mexican president leading the fight against French occupation. When Juarez returned to the capital in 1867 Banco de Londres enjoyed his full confidence.

Except for insignificant Chihuahua banks, Banco de Londres was the only banking institution in Mexico until the 1880s, yet it struggled with serious difficulties. Founded in 1884 by the merger of two banks, the rival Banco Nacional Mexicano enjoyed greater privileges; its notes were the only ones accepted in government offices, and it served as the government depository for money, securities, and metals. In 1886 Banco Nacional had almost nine times the assets of Banco de Londres, which that year bought the concession of the failing Banco Comercial.

The bank’s name was shortened by eliminating “Sudamerica” in 1889 to reflect its reduced scope of operations. In 1897 it won the right to establish banks of emission in the states and territories. By 1901 it had narrowed the Banco Nacional’s lead in assets to about five to two. Banco de Londres came under French control in 1904, with Banque de Paris et des Pays Bas and the Société Financiére pour 1’Industrie au Mexique (an investment company representing Mexican industrialists and a consortium of Swiss banks as well as the Banque de Paris) holding 62 percent of the shares.

The revolution against the rule of Porfirio Diaz that began in 1910 presented great difficulties for Banco de Londres. It had loaned money to the insurgent Francisco Madero shortly before he crossed into the country from Texas, yet its branches in territory captured by the rebels were subject to looting and even destruction. Order was restored after Madero assumed the presidency, but in 1913 the bank was forced to make loans to Victoriano Huerta, who captured and executed Madero. After the forces of Venustiano Carranza defeated those of Huerta, Mexican banks had to accept their paper as legal tender in payment of debts. Banco de Londres partially retrieved the situation by purchasing valuable real estate and buildings with its depreciated currency.

By 1916 paper currency had become worthless. The government canceled the emission privileges of the banks and expropriated the precious metals in their vaults. Under Carranza’s successor Banco de Londres recovered its privileges but not its treasure. Aside from a claim of 29 million pesos against the federal government, it had little in the way of assets. The government agreed to pay 21.8 million pesos in 1925, but in that year the creation of Mexico’s central bank, Banco de Mexico, ended Banco de Londres’s privilege of issuing currency. Nevertheless, the bank found another field of operations in 1928 by installing Mexico’s first trust department.

In Private Mexican Hands, 1934–1982

The onset of the world depression of the 1930s forced Banque de Paris to reduce its capital in Banco de Londres from 21.5 million to five million pesos in 1934. Both Banco de Mexico and Mexican private banks intervened to keep Banco de Londres solvent, with a group of Mexican businesses assuming the majority of the shares. The biggest block of shares (28 percent in 1941) was taken by the Compañia General de Aceptaciones, created in 1936 as an arm of the Garza Sada family. This family controlled the Monterrey Group, Mexico’s most powerful industrial combine, and Compania General de Aceptaciones facilitated the transfer of funds between different firms of the group. Banco de Londres participated in the creation of the Sociedad Financiera Mexicana (Sofimex) in 1937, another powerful investment bank and holding company that in turn took shares in the bank.

The Garza Sada family and other interests also formed, in 1939, a holding company, Union Financiera, through which they exercised control over three other institutions established within the next two years: Monterrey, Compania de Seguros sobre la Vida, an insurance company covering accident, illness, and property damage as well as life that subsequently became Seguros Monterrey; Banco Capitalizador de Monterrey, a capitalization bank; and Crédito Provincial Hipotecario, a mortgage bank. These would later be merged into the future Banca Serfin, as would such subsequent creations as Fianzas Monterrey.

Banco de Londres grew by acquisition during the 1950s and 1960s, absorbing Banco del Norte in 1951, five banks in 1956, Banco de Mexicali in 1958, Banco del Norte de Mexico in 1962, and Banco Industrial de Monterrey in 1963. Its book value rose from 39.9 million pesos ($8.3 million) in 1940 to 9.28 billion pesos ($742.3 million) in 1975, its profits increased from 566,716 pesos ($117,594) to 28.5 million pesos ($2.3 million), and its number of branches grew from two to 194. It obtained its first computer in 1967, began issuing life insurance in 1969, and joined other banks in creating Mexico’s first credit card.

Compania General de Aceptaciones (later Financiera Aceptaciones) also thrived, its book value growing from 15 million pesos ($2.2 million) in 1946 to 15.4 billion ($1.2 billion) in 1975. Its share of all financial investments in Mexico grew from less than three percent in 1946 to 14 percent in 1960 before falling to ten percent in 1975. In 1969 it was extending credit to 745 Mexican enterprises.

The shareholders in the various firms and institutions that held majority control of Banco de Londres in the late 1950s constituted a coalition of different investment groups with some interlocking interests. At this point no one group controlled the bank, but subsequently the Garza Sada interests became dominant. After the division of the Monterrey Group in 1974 into four giant holding companies the children of Eugenio Garza Sada inherited the largest block of stock in Valores Industriales S.A. (Visa) and also came to control Banco de Londres.

Banca Serfin was created in 1977 by the merger of Banco de Londres and Financiera Aceptaciones, Serfin being short for servicios financieros integrados (integrated financial services). The new institution combined the function of a bank of deposit, savings bank, investment bank, mortgage bank, and trust company. Banca Serfin also acquired 13 Mexico City branches of Banco Azteca. It took third place among banks in 1978, with assets of 61.2 billion pesos ($2.7 billion), or ten percent of the nation’s total, and 335.2 billion pesos ($5.9 billion) in 1982, also ten percent of the total. Banca Serfin opened a Los Angeles branch in 1978, a London branch and New York City agency in 1980, 16 regional computer centers in 1981, and a Bahamas branch in 1982. Visa held 77 percent of Banca Serfin in 1980.

Government Control, 1982–1992

Following four years of unprecedented prosperity as a result of greatly increased income from oil exports, Mexico suffered its worst economic crisis within memory in 1982. After large amounts of private capital left the country President Jose Lopez Portillo nationalized the nation’s private banks, accusing a group of wealthy Mexicans, encouraged by the banks, of draining the country’s wealth by investing it abroad. The main business of the nationalized banks became financing government borrowing.

Lopez Portillo’s successor, Miguel de la Madrid, embarked almost immediately, after assuming the presidency in late 1982, on a drive to win back business confidence through partial privatization of the banks. In 1984 the government sold off bank holdings in 339 companies, including financial services companies, allowing bank shareholders to purchase them with indemnity bonds issued in compensation for the takeover. Financial services companies quickly became the core of a de facto parallel banking system, holding nearly a quarter of national savings. In 1987 one-third of the shares of the three major banks were sold at discount prices to bank executives and employees and lists of politically well-connected clients and subsequently were traded publicly on the Bolsa de Valores Mexicanos, Mexico’s stock exchange.

The reprivatization of Banca Serfin was completed in 1992, when the Mexican government sold 51 percent of its remaining two-thirds stake for about $940 million to an investor group headed by Adrian Sada Gonzalez. With his brother Federico, Adrian Sada Gonzalez (a great-grandson of family patriarch Francisco Sada, Isaac Garza’s brother-in-law) was running Vitro S.A., the world’s third largest producer of glass containers. Banca Serfin had about $22 billion in assets at the end of 1991 and earned about $125 million in profits that year.

Problems of the 1990s

The new management changed the company name to Grupo Financiero Serfin and moved its headquarters from Mexico City to Monterrey. It overextended itself by making a number of loans that could not be repaid when the peso went into free fall in late 1994, touching off another national economic crisis. In June 1995 the Mexican government agreed to assume 4.3 billion pesos ($750 million) in Banca Serfin’s problem loans in return for a commitment from Grupo Financiero Serfin’s existing shareholders to inject 2.17 billion pesos ($350 million) of fresh capital into the bank. Serfin’s nonperforming loans had reached 11.3 billion pesos ($1.8 billion), or 12 percent of its total loan portfolio, in March. This rescue scheme was regarded as the only way of keeping the bank afloat. The U.S. firm General Electric Capital Corp. acquired 13 percent of Grupo Financiero Serfin in exchange for its previous investment in Serfin’s leasing, factoring, and warehousing subsidiaries.

Adolfo Lagos Espinosa, a seasoned bank officer who became chief executive officer of Grupo Financiero Serfin in March 1996, returned corporate headquarters to Mexico City. During the next six months he replaced half of the group’s top managers and laid off nearly ten percent of its 18,000 employees. Although 45 percent of Banca Serfin’s loan portfolio was now regarded as uncollectible, he ended all rollovers and set aside reserves to fully cover bad loans. In May Lagos Espinosa negotiated a second, $2.6 billion government purchase of the company’s bad loans and by September had raised 61 percent of the $1.3 billion it pledged to pay the government as part of the deal. Some of the money came from J.P. Morgan & Co., which was searching for an investor to buy 20 percent of the Serfin group.

In 1995 Grupo Financiero Serfin had total revenues of 59.26 billion pesos ($8.7 billion) and a net loss of 3.1 billion pesos ($455 million). Grupo Financiero Serfin had about 640 offices in Mexico and offices in eight foreign countries. Banca Serfin alone was operating 509 branches, 33 convenience-banking units, and 18 Serfin financial centers throughout Mexico. The bank had deposits of 77.2 billion pesos (about $10.2 billion), or 13 percent of the Mexican total, at the end of 1995. Banca Serfin introduced its own credit cards in 1994. The group’s investment banking arm, Operadora de Bolsa Serfin, ranked first in Mexico at the end of 1994 in money-market, equity, and fixed-income trading. It was operating four equity and six fixed-income mutual funds, while Banca Serfin offered one equity and five fixed-income funds through its branches.

Still suffering the effects of bad loans, Grupo Financiero Serfin was in the red by nearly seven billion pesos ($915 million) in 1996. Banca Serfin created allowances for loan losses of 8.34 billion ($1.09 billion) during the year and reported a net loss of 7.45 billion pesos ($974 million) for the year. In December 1996 the financial group sold its Afianzadora Insurgentes Serfin surety-bond subsidiary, which it had purchased in 1993, to USF&G for $65 million.

Principal Subsidiaries

Almacenadora Serfin, S.A. de C.V.; Arrendedora Serfin, S.A. de C.V.; Banca Serfin, S.A.; Factoraje Serfin, S.A. de C.V.; Operadora de Bolsa Serfin, S.A. de C.V.; Serfin Casa de Cambio, S.A. de C.V.; Seguros Serfin, S.A.; Servicios Corporativos Serfin, S.A. de C.V.