A small number of aggressive businessmen
have accumulated huge fortunes in record time-abetted at every stage by
influential politicians of the ruling party. Today’s powerful bankers and financiers
are not the same people who owned Mexico’s banks two decades ago.
Among the neoliberal policies and programs that
have been applied with singular aggressiveness
in Mexico, none has created a greater concen-
tration of wealth than the restructuring of the financial
system. The dramatic changes in Mexican banking
have not only contributed to a bigger gap between the
poor and the wealthy, but also to a series of major con-
flicts and realignments among the very wealthy them-
selves. Bankers, industrialists, investors-and their key
allies, the politician-entrepreneurs-have changed the
way they do business with one another over the past 15
years.
The neoliberal process was initiated in Mexico by
President Miguel De la Madrid during his term in office
from 1982 to 1988. De la Madrid was determined to
implement an IMF-inspired program of free trade and
state cutbacks to assure payments on the country’s huge
external debt. Under the guiding assumption that eco-
nomic growth would result from an increase in the
amount of capital accumulated by the wealthy sectors
of society, the process has been carried forward by
27
Carlos Marichal is an economic historian at the Colegio de
Mexico, in Mexico City. He is the author of A Century of Debt
Crises in Latin America (Princeton University Press, 1989).
VOL XXX, No 6 MAY/JUNE 1997REPORT ON WEALTH
Mexico’s next two presidents, Carlos Salinas de
Gortari, who followed De la Madrid, and Ernesto
Zedillo, who has ruled since December, 1994.
Fifteen years of neoliberalism have provided oppor-
tunities for investors to increase their profits on a scale
unprecedented in modern Mexican history. A massive
program of privatization of state-owned companies and
banks which began in 1987, accompanied by the pro-
motion of financial schemes aimed at stimulating a
high rate of return on investments in the Mexican stock
Carlos Slim HelO, worth an estimated $6. 1 billion, is ranked by Forbes as the wealthiest man in Latin America.
exchange and in the banking sector, has made wealthy
Mexicans much wealthier. At the same time, the radical
downsizing of the welfare state-cutbacks in pensions,
health plans and other social benefits for salaried
employees, as well as the systematic reduction of real
wages-has drastically reduced the real income of
workers at all levels.
To put it simply, the rich few have become richer and
the poor multitudes have become poorer. Today the
wealthiest 10% of Mexico’s population receives 50%
of total income-the highest percentage since measure-
ment began in 1950-while the poorest 20% receives
barely 3%.1 The income gap is even more marked if
measured by the available figures on the concentration
of profits and capital. Eighty-seven percent of the value
of all bank resources and deposits, for example, is held
in only 4% of the accounts. And by 1994, according to
official reports of the Mexico City stock exchange, a
group of 183,000 individuals-0.2% of the popula-
tion-held capital equivalent to 51% of total GNP. The
profits of these capitalists during the banner year
1993-the year NAFTA was signed-were greater than
the sum of expenditures by the Mexican government on
education, health, urban programs, ecology and water
programs, and all public social investments.
Banking, which has become perhaps the most oli-
gopolistic sector in the Mexican economy, began the
process of concentration before official neoliberal poli-
cies became the law of the land. In the 1960s, for exam-
ple, there were 248 private and mixed banks. By 1977
there were only 70 banking groups, of which the ten
largest controlled 82% of total deposits. The trend
accelerated in the 1980s as the number of banking
groups declined from 54 in 1980 to 40 in 1982. Then
the debt crisis exploded, prompting then-President Jos6
L6pez Portillo to nationalize the banks. The process of
concentration nevertheless continued as a result of a
series of bank mergers, leaving 29 commercial banks in
1983 and finally only 18 in 1988, when the whole
commercial-banking system was re-privatized to a
select group of investors. Following the devaluation of
the peso in December, 1994 and the banking and finan-
cial crisis of 1995 and 1996, only 13 banks remain. 2
Within this oligopolistic banking structure, the three
largest banks-Banamex, Bancomer and Serfin–hold
over 50% of all deposits nationwide, giving them effec-
tive control over the financial system. A study of
depositors based on Banco de M6xico data revealed
that by late 1993, a mere 26,000 individuals held 60%
of the total resources of the Mexican banking system,
highlighting the extraordinary concentration of banking
resources. But the owners of the banks are a much
smaller group than the big depositors. In 1992, shortly
after privatization, a mere 234 investors held effective
control of the Mexican banks. These investors consti-
tute a true elite-a financial oligarchy-within the
banking system. This oligarchy controls the fundamen-
tal instruments of economic and-indirectly–of polit-
ical power in Mexico today. 3
The powerful bankers and financiers of 1996, how-
ever, are not the same individuals who owned the banks
two decades ago. There has been a dramatic restructur-
ing of the Mexican entrepreneurial class in recent years
which has led to the rapid rise of a small new nucleus
of aggressive businessmen who have accumulated huge
fortunes in record time, abetted at every stage by the
highest-level technocrats and politicians of the still-
dominant Institutional Revolutionary Party (PRI). The
privatization of the commercial banks by the Mexican
government between 1990 and 1992 was carried out
directly under the supervision of then-President Carlos
Salinas and coordinated by Guillermo Ortiz, now
Minister of Finance in the Zedillo administration.
Numerous articles have documented the irregularities
observed in the auctions of the banks, but the govern-
NACIA REPORT ON THE AMERICASREPORT ON WEALTH
ment has systematically refused to provide detailed and
credible information on the sales of the leading finan-
cial institutions to 18 groups of powerful investors. 4
Several of the wealthiest of the new bank owners fig-
ured in the Forbes 1994 ranking of the richest individ-
uals in the world-24 of whom were Mexicans. One of
the best known is Carlos Slim Held, whose fortune is
estimated to be over $6 billion, and who is the principal
owner of the Mexican telephone giant, Telmex-a firm
he bought in favorable circumstances during the admin-
istation of his friend and business
associate, Carlos Salinas. Slim is
an owner of the financial firm
Carso-Inbursa, which obtained
the highest profits of any invest- In
ment firm in Mexico in 1996, and shortly a is also a stockholder in Banamex,
Mexico’s largest commercial privatized,
bank. His cousin, Alfredo Harp
Held, whose fortune was estimat- banks were c
ed to surpass $1 billion, took a mere 234 ir much larger chunk of Banamex
stock and became one of its oper- new financ
ating chiefs jointly with his long- controls the time associate Roberto Hernindez,
a new tycoon also worth over $1 instruments billion. According to one report,
Herndndez picked up his finan- and politic
cial skills through his close asso- Me ciation with Carlos Slim in the
1970s. 5
Another case of family connec-
tions in the 1990-1992 privatiza-
tion of Mexican banks involves various scions of the
Garza-Sada and Garza families, among the wealthiest
in the dynamic northern city of Monterrey. The banking
leader in this powerful clan of industrialists and
financiers is Eugenio Garza Laguera, who ran the
financial firm Vamsa, and bought control of Mexico’s
second-biggest bank, Bancomer, in 1991. His cousin,
Adridn Sada Gonzdlez, principal stockholder of the
powerful glass emporium, Vitro, simultaneously
bought control of the third-largest bank in Mexico,
Serfin, thus assuring that major firms all “remain in the
family.” 6
efore they were bankers, most of these neoban-
queros-so known for their fierce adherence to
neoliberal ideology-had accumulated large for-
tunes during the administration of President De la
Madrid. At that time the state owned 66% of all com-
mercial-bank capital-an ownership structure which
did not make the banks attractive targets for private
investment. Ambitious entrepreneurs like Slim,
VOL XXX, No 6 MAY/JUNE 1997
f
t
:I
Hernindez and Harp Held found more profitable
opportunities in the stock market which until 1986 was
dominated by the buying and selling of public-debt
obligations. Buying and selling government debt could
be extremely lucrative since the real interest rates paid
by the Mexican treasury at that time ran at over 50%
per year. Because the De la Madrid administration’s
priority was servicing the country’s $100 billion exter-
nal debt, it asked investors who held internal public
debt to roll over their loans-i.e. to give the govern-
ment additional time to pay, and
in return collect extremely high
interest rates. This mechanism
allowed financial speculators to
992, benefit from a huge windfall
ter being paid for by the government at
least until 1986. By that time,
:he Mexican speculation had shifted to the
Mexican stock market, which )ntrolled by a speculation itself had made
vestors. This quite lucrative.
The value of the shares of pri-
al oligarchy vate stocks bought at rock-
fundamental bottom prices in late 1982 by investors like Carlos Slim sky-
of economic rocketed dramatically, and had
increased by an average of
al power in 4,884% by September, 1987.7
xico. At this point the wealthiest “investors unloaded much of
their highly inflated stock to
small and medium investors,
causing a gradual decline in
stock quotes and then a tremendous crash in 1987.
Generally speaking, the larger investors who had inside
information-or at least advance notice of market
developments-from the directors of their brokerage
houses managed to remain solvent through the stock-
market crash, whereas the small fry were wiped out in
large numbers. And after the crash, the big fish moved
in again to acquire the stock of many Mexican firms at
low prices.
Subsequently, as the Mexican government began
selling state-owned firms in late 1987, both the older
and newer generation of financiers began to bid for the
most profitable enterprises put on the block, first by the
De la Madrid administration and then, on a larger scale,
during the Salinas government. A few examples suffice
to illustrate the opportunities for profit that came from
privatization. Carlos Abedrop, former owner of the
Banco del Atlintico, bid and acquired Mexicana de
Aviaci6n, the large state airline. Alberto Bailleres, for-
mer owner of Banco Cremi, bought various metallurgi-
cal and mining firms which were sold by the govern-
29REPORT ON WEALTH
ment. Raymundo G6mez Flores, a new millionaire
from Guadalajara, bought the large government-owned
bus manufacturing firm, Dina, for $81 million, posi-
tioning himself to control the lucrative sales of large
vehicles for public transportation. Carlos Slim and two
associates, construction magnate Bernardo Quintana
and industrial multimillionaire R6mulo O’Farril,
bought the bulk of the key blocks of voting shares in the
telephone monopoly Telmex, sharing financial control
and technical management with two foreign telephone
firms, Southwestern Bell and France Cables et Radio.
Slim and his partners obtained control of Telmex, Mexico’s second-biggest enterprise (after Pemex, the
state-owned oil firm), by paying a mere $1.7 billion for
properties whose real worth was estimated to be close
Marks of distinction: Fur coats at the Jockey Club in Mexico Cii
to $12 billion. They paid very little cash, using credits
advanced to Slim by a number of banks. After the pur-
chase, the price of the company’s stock went through
the roof.
For the Mexican government, the objective behind
the privatization of state-owned companies was only
secondarily to reap profits from divestment. Rather, the
idea was to transfer productive resources to private con-
sortia which promised to make large investments in key
sectors that needed new technology and more capital.
The administration of Carlos Salinas thus sold 160
state-owned enterprises in such industries as steel, tele-
phones, mining, airlines, fertilizers and agroprocessing
to private investor groups, which snatched them up at
bargain prices.
The initial objective of the sale of the state-owned
commercial banks was quite different. In most cases
they were auctioned off at relatively high prices. All
told, the government obtained almost $13 billion dol-
lars between 1990 and 1992, as many groups of
Mexican investors competed actively for these poten-
tially lucrative firms and for control of their corre-
sponding shares of the national financial market. There
was, nonetheless, a tradeoff. The government promised
the new commercial bank owners a huge differential
between interest to be paid on deposits and the interest
charged on loans, thus guaranteeing their initial prof-
itability. Not suprisingly, in 1992 and 1993 total bank
profits shot up, surpassing $1.5 billion in 1992 and
reaching almost $3 billion in 1993.8
This amazing increase in returns, however, was not
based on solid or safe banking. The big margins that
had been authorized by the head of the Mexican central
bank, Miguel Mancera, led many of the new generation
of neobanqueros to expand credit instruments at a fast
and furious pace, offering literally millions of credit
cards to low-income clients and extending loans
to thousands of companies with dubious track
records. Not surprisingly, problems mounted
rapidly, and by the end of 1993 the banks had
almost $10 billion of bad loans on their books. 9
Among the more reckless of the financiers was
Carlos Cabal Peniche, a high-rolling young
entrepreneur who had major fruit-exporting
operations in the southern state of Tabasco, and
who, with a few associates, acquired the Cremi-
Uni6n Bank in 1991 for $300 million.’ 0 In 1992
the 38 year-old speculator decided to become a
world player and used credit from his own bank
to set up a series of dummy corporations which
allowed him to purchase the Florida-based
fresh-foods division of the international con-
glomerate, Del Monte, for more than $500 mil-
ty. lion. Cabal lent his dummy corporations $700
billion which he funneled back to himself to finance his
acquisition of Del Monte. News of the scandal forced
then-Treasury Minister Pedro Aspe to initiate an offi-
cial investigation, and Cabal went into hiding, eventu-
ally fleeing the country-though his lawyers continued
to publish full-page advertisements for months in
Mexico City newspapers defending their client’s repu-
tation. Finally, in 1994 Cabal’s bank was formally taken
over by the government and later put on the block for
sale.
Cabal Peniche’s fall from grace was only the pro-
logue to a series of bank scandals which culminated in
the financial crash of 1995. During 1995 and 1996, fac-
ing a mountain of bad debt, more than half of all
Mexican banks went into technical default, and were
rescued by the government which absorbed the bulk of
the losses. The Zedillo administration has put in prac-
tice a variety of financial schemes to save the banks,
including a program for temporary bank capitalization,
an accord to support bank debtors and, most important-
ly, a government fund called the Banking Fund for the
30 NACIA REPORT ON THE AMERICASREPORT ON WEALTH
Protection of Savings (Fobaproa) which is meant to
absorb bad debt. The Fobaproa has thus far absorbed
the extraordinary sum of $40 billion of bad loans on the
books of the banks. According to a recent report, in
1996 this huge bank bailout cost Mexico the equivalent
of 8.6% of total GNP.” 1
The bailout has ensured that most of the Mexican
financial elite will not lose their banks, but it has
also made it easier for a number of foreign banks
to buy into several large and medium-sized firms, in
some cases establishing control over them. The most
recent banking crisis has thus spawned a new process of
restructuring, and is forcing important changes in the
top tier of ownership of the Mexican banking system.
At the same time, the concentration and centralization
of capital and wealth is being reinforced.
The most aggressive of the newcomers are a number
of Spanish banks which have staked out Mexico and the
rest of Latin America as ideal territory for the spread of
their increasingly globalized financial empires. The
leading Spanish commercial bank, Banco de Bilbao y
Vizcaya (BBV), has recently bought control of the
Mexican banking group known as Probursa-Banco
Mercantil, acquiring 70% of its stock. BBV has
promised to inject new capital into the large but almost
bankrupt bank on condition that the government absorb
over $1 billion of the firm’s bad loans. The aggressive
and dynamic Santander Bank paid $166 million for
75% of the capital of Banco Mexicano, and promised to
inject money to modernize the company. In exchange,
the Fobaproa has taken on an amazing $3 billion dollars
of the bank’s outstanding bad loans, allowing Santander
to clear the books of its new Mexican acquisition.’ 2
Canadian banks have also been major actors in the
Mexican banking restructuring. The Bank of Nova
Scotia has taken over 50% of Grupo Inverlat, a banking
group run by Agustin Legoretta, scion of Mexico’s old-
est banking family. Similarly Bancomer, the second-
largest financial institution in the nation, has had to
accept a friendly acquisition of 16% of its stock by the
Bank of Montreal, which is now probably its largest
individual stockholder. U.S. banks and bankers have
been more cautious about buying into Mexican banks,
although there are exceptions. For instance, Banorte, a
rapidly growing enterprise controlled by the king of
Mexican corn tortillas, Robert Gonzalez Barrera, has
sold large amounts of its stock to 35 U.S. investment
funds. Recently, Nicolas Brady, former U.S. Secretary
of the Treasury decided to join in and bought 2.5% of
the Banorte stock.13
This initial incursion of foreign banks and bankers
into Mexico is but a glimpse of things to come, for it is
likely that in a few years many other international firms
will take a stake in the Mexican banking system. This
does not, however, augur the downfall of Mexico’s
financial plutocracy, which is likely to weather the cri-
sis by making alliances with the foreign banks. In fact,
in the case of Banamex, the country’s biggest bank, we
already have an example of a set of global alliances
which has left financial control in Mexican hands.
Banamex is owned by a powerful group of billionaires
and multi-millionaires who have emerged from the
financial travails of 1995 and 1996 largely unscathed.
The bank is run by financiers Roberto Hernmndez and
Alfredo Harp Held.
Other major stock-
holders include Jer6- In 1995 and 1996, nimo Arango, owner
of the Aurreri super-
market chain and
classified as a bil-
lionaire by Forbes,
Lorenzo Zambrano,
owner of Cemex, the
fourth-largest cement
company in the world,
Lorenzo Servitje,
owner of Bimbo, the
largest bread and
bakery conglomerate
in Mexico, and
Claudio X. Gonzalez,
head of Kimberley
Clark in Mexico.14
As a result of
Mexico’s crisis, the
banking system has
more than half of
Mexican banks
went into default.
They were rescued
by the government,
which absorbed $40
billion of bad
loans–costing
Mexico the
equivalent of 8.6%
of its GNP.
suffered heavily but is being pulled out of the morass
thanks to huge government subsidies. The Mexican
banks, both national and foreign-owned, are still well-
positioned to take advantage of the neoliberal economic
policies that continue to be applied by the Zedillo
administration and which favor them markedly. These
policies guarantee that the bank owners will continue to
accumulate larger fortunes month by month, making
Mexico’s scandalously unequal distribution of income
even worse. Recent estimates say that 14 million
Mexicans are living in conditions of extreme poverty,
three million of them in the southern state of Chiapas.
This does not seem, however, to bother the financial
technocrats who have spent the last two years bailing
out the Mexican banks and their wealthy owners while
the government has drastically curtailed social invest-
ment. But then again neoliberalism is not a program
designed to benefit everyone; its aim is to help out the
rich, and as the Mexican case so vividly demonstrates,
at that it has proven quite successful.
The Rapid Rise of the Neobanqueros
1. Mario Camberos, “La desigualdad y el crecimiento econ6mico de
Mexico. Perspectivas en el neoliberalismo,” Economia Informa
(Mexico City), No. 225, January, 1994.
2. For historical data on the Mexican banking system see the publi-
cations of the Center of National Information and Studies (Cien),
in particular, No. 19, March, 1983 and No. 154, May 1985. For
more recent data see Elvira Concheiro B6rquez, El gran acuerdo:
gobierno y empresarios en la modernizaci6n salinista (Mexico
City: Era, 1996).
3. Elvira Concheiro B6rquez, El gran acuerdo, chapters 1 and 4.
4.The so-called “white books” on the bank privatization process
do not include the most important documents (such as minutes
or resumes on meetings) detailing how decisions were finally
taken to favor one or another group, nor do they explain how
the government evaluated these groups as to their capacity to
run the banks. See Carlos Acosta C6rdova, “Banco por banco,
de la privatizaci6n es lo que se ignora que Io que se sabe,”
Proceso (Mexico), September 18, 1995, pp. 6-11.
5.Proceso (Mexico), September 13, 1993, p. 9.
6. See Elvira Concheiro, Elgran acuerdo, chapters 1 and 2, and
banking annex, pp. 155-171.
7.The other financiers who benefited most were Carlos Slim Helo
and Juan Antonio Perez Simbn of the private investment firm
Carso-inbursa; Roberto Hernatndez and Alfredo Harp Helu of the
firm Accival; Jose Madariaga Lomei of Probursa; Manuel Somoza
Alonso and Eduardo Creel of Invermexico; Agustin Legoretta of
Inverlat; Eduardo Legorreta of OBSA and Carlos Abedrop Davil of
Fimsa. See Elvira Concheiro, El gran acuerdo, p. 33.
8.This is based on data published by the Comisi6n Nacional
Bancaria and reproduced in Roberto Gonzalez Amador, “Creci6
39.1% en un aio la utilidad bancaria,” La Jornada (Mexico),
January 22, 1994, p. 54.
9. Roberto Gonzalez Amador, “Creci6 39.1% en un ano.”
10.For information on the extraordinary wheeling and dealing of
Cabal Peniche, see Tim Padgett, “The Man Who Bet the
Hacienda,” Newsweek, September 19, 1994, p. 38; Armando
Guzmin and Ignacio Ramirez, “Alrededor de 20 empresas y un
banco, legado de dos sexenios para Cabal Peniche,” Proceso
(Mexico), March 22, 1993, pp.12-14; and Elvira Concheiro, “De
la cOspide facil a la prisi6n dificil,” La Jornada (Mexico),
September 8, 1994, p. 43.
11.The National Banking Commission made this information public
in a meeting with bankers in New York in late January, 1997.
Alicia Salgado, “Subi6 a 212 mil millones el costo del rescate
bancario,” El Financiero, January 28, 1997, p. 3.
12.E1 Financiero (Mexico), November 29, 1996, p. 7. On Santander’s
Latin American strategy, see Lisa Sedelnik, “Poised to Strike,” in
Latin Finance, July/August, 1996, pp. 12-20.
13.Carlos Acosta Cordova, “Fracasa el salvataje de los bancos,”
Proceso (Mexico), May 6, 1996.
14.Also on the board of Banamex is Carlos Hank Rhon, son of one
of the wealthiest of Mexican politicians and manager of over two
dozen industrial, commercial and financial firms, including a
bank in Texas. But Hank Rhon runs most of his financial opera-
tions through his own private banking firm. On the stockholders
of Banamex, see Felipe Cobiun and Fernando Ortega Pizarro,
“Roberto Herndndez,” in Proceso (Mexico), September 13, 1993,
pp. 6-10
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