Citi Confronts Global Fallout as U.S. Nears Deal on Stake

Citigroup Inc. is closing in on an agreement to boost the federal government's stake in the company to as much as 40%, according to people familiar with the situation. A deal could be announced as soon as Thursday.

But a greater U.S. stake will bring a slew of new complications for executives of the New York company.

For example, a Mexican law bars any institution that is more than 10%-owned by a foreign government from running a bank in that country. As a result, some Citigroup executives are worried that an increased U.S. stake might subject the bank to pressure to relinquish some or all of its ownership of Grupo Financiero Banamex, the No. 2 bank in Mexico by assets.

Though Citigroup is loath to shed Banamex, which is seen as a crown jewel of the bank's operations, executives have concluded that the issue will probably have to be resolved through diplomatic channels between the U.S. and Mexico, people familiar with the matter said.

Anticipating friction over Banamex, a group led by two top Banamex officials recently has talked with investment bankers about helping to lay the groundwork for a possible bid to buy the Citigroup unit, according to people familiar with the discussions.

Manuel Medina Mora, Banamex's chief executive and the head of Citigroup's Latin American operations, and Roberto Hernandez, a Citigroup board member who was a co-owner of Banamex before it was acquired by Citigroup, also have lobbied Mexican government officials to press for Banamex to return to local hands, these people said.

Citigroup is likely to fight any outside effort to shed Banamex. Chief Executive Vikram Pandit views Banamex as the heart of the company's global empire. Citigroup executives this year have weighed a sale of Banamex, but regard that as a last-ditch option if the company's financial condition worsens, according to people familiar with the matter.

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