Citigroup could face losing its Mexican subsidiary Banamex, after Mexican senators asked the Supreme Court, on Wednesday, to rule whether or not the local bank would be breaking the law by being partly owned by the United States government.
Under a 20-year-old Mexican law, foreign governments cannot own banks in the country.
The U.S. government bought a 34% stake in Citigroup during the midst of the global economic crisis, which raises legal questions about Banamex, the second largest bank in Mexico, and Citi's subsidiary.
The Mexican Supreme Court will decide in the coming weeks to rule on whether or not Citigroup should be forced to sell its Mexican unit.
Mexico's Finance Ministry had already ruled in March that the U.S. government's stake in Citigroup did not pose a problem with Mexican bank regulations.
Banamex represents around 15% of Citigroup's global profits, and was bought back in 2001 for $12.5 billion.
Legal experts note that if the Supreme Court does accept the case, it will impact other financial institutions doing business in Mexico, such as HSBC, which received help from the U.K. government.
"If the Supreme Court does take the case, it could take up to seven months to decide, time in which the U.S. government could have sold its stake," said Ricardo Resendiz, expert in international affairs with the legal firm Resendiz Wong, Abogados. 0:00 /3:49The hunt for banking profits
The Supreme Court will look for a political way out, in which Banamex, Citi and the U.S. government could retain control of the stake," he added.
Some Mexican newspapers have reported that if Citigroup is forced to sell Banamex, interested buyers could include Mexican millionaire, Carlos Slim, and Mexico's central bank governor, Guillermo Ortiz, who ends his term at the central bank in December.
Mexico's financial system is dominated by foreign-owned banks. The Spanish bank BBVA Bancomer has 22.74% of the market, measured by assets, followed by Banamex with 19.30% and Spanish bank Santander with 14.18%, according to the Mexican National Banking and Values Commission, at the end of the second quarter, 2009.
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