--Afore XXI Banorte promises to slash fees after absorbing BBVA
Mexican pension business
--Executives confident deal will receive regulatory approval
--IMSS to tap reserves to cover its half of purchase price
MEXICO CITY--Afore XXI Banorte, the pension administrator
jointly owned by Mexican bank Grupo Financiero Banorte SAB
(GFNORTE.MX) and social security institute IMSS, expects to slash
commissions for its pension clients after it acquires Spanish
financial group Banco Bilbao Vizcaya Argentaria SA's (BBVA) Mexican
pension business.
Economies of scale should allow the Afore to cut fees to 1.10%
from 1.33% currently, executives said Wednesday, as Afore XXI
Banorte will command around 28% of the assets in the market, making
it the largest in the system. A fee of 1.10% would also make it the
cheapest option.
The $1.6 billion purchase, which must get approval from Mexico's
antitrust authority as well as its pension regulator, is expected
to close in the first quarter of 2013. The final price tag could
rise to $1.73 billion, depending on when the deal closes.
Executives at both Banorte and IMSS expressed confidence that
the deal will blessed by Mexican regulators, who have the option to
waive the 20% market share cap for participants in the sector.
Mexican workers can choose their pension administrator, so in
practice limits on market share could exclude them from their
preferred pension fund.
The BBVA purchase catapults Afore XXI Banorte to the top
position among Mexican pension fund administrators in terms of
size, from fourth currently. The combined entity will manage 516.54
billion pesos ($39.73 billion) for close to 12 million
customers.
Banorte Chief Executive Alejandro Valenzuela said Afore XXI
Banorte funds return, on average, 12.6% versus 11.7% for the
broader system.
Banorte says it has the necessary capital to cover its half of
the purchase. Mexican social security institute IMSS plans to
divert some of its reserves for disabled workers into the Afore to
cover its portion. Currently those reserves are invested in fixed
income instruments that yield 7% a year whereas the stake in the
Afore should return at least 11% annually, IMSS director Daniel
Karam explained, calling the transfer of assets a great financial
decision.
BBVA first floated the possibility of the sale in May, when it
said it was looking to sell its pension businesses in Mexico,
Chile, Colombia and Peru--either together or separately. Combined,
those businesses manage about EUR55 billion in assets and had a net
profit of EUR231 million for 2011.
Afore XXI Banorte director Francisco Tonatiuh Rodriguez said his
Afore wasn't interested in expanding into South America via a
purchase of BBVA pension assets.
Proceeds from the Mexican sale could boost BBVA's capital ratio
by 26 basis points, according to a BBVA official.
BBVA remains Mexico's biggest lender by deposits, while Banorte
is the third-biggest.
Write to Amy Guthrie at amy.guthrie@dowjones.com
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