some more on sfn
here's the link but just in case below is the article
interactive.wsj.com
Grupo Financiero Serfin S.A.
Dow Jones Newswires -- June 18, 1999
DJ Merrill Lynch: Mexico's Serfin No Risk To Other Banks
MEXICO CITY (Dow Jones)--The problems of struggling Mexican financial services company
Grupo Financiero Serfin SA (GFLIY) do not represent a systemic risk for other domestic banks,
Merrill Lynch investment bank said Friday.
Analysts Rodrigo Quintanilla and Alejandro Schecter said they "believe that Serfin's weaknesses
were well-known in the industry and do not represent an additional source of systemic risk for the
banking system. We further believe that the system's financial strength should be bolstered by the
orderly resolution of Serfin."
Serfin, Mexico's third-largest bank, said this week its shareholders will vote July 8 on injecting new
capital into the institution to cover 13.0 billion pesos ($1=MXN9.3800) in required reserves and
deferred taxes. If the capital increase is rejected, as expected, the bank will fall under the control of
the government's new bank insurance agency IPAB.
IPAB is expected to inject the necessary capital and then auction the bank to new investors.
"We think that this action by banking regulators was triggered by the compression in the net interest
margin that resulted from declining interest rates in Mexico and lower yields paid by the Fobaproa
promissory notes," Merrill Lynch said.
Serfin has more than MXN65.0 billion in promissory notes that were exchanged for non-performing
loans assumed by the extinct deposit insurance agency known as Fobaproa. Those notes represent
more than 56% of the bank's assets.
Until April, the Fobaproa promissory notes paid Serfin two percentage points above Mexico's
average interbank interest rate, known as TIIE, which closed Friday at 23.3250%. After that date,
Serfin received a rate of 1.35 percentage points below 91-day Treasury bills known as Cetes. The
91-day Cetes rate currently stands at 21.60%.
Quintanilla and Schecter said they have already incorporated a decline in net interest margins in their
estimates of other Mexican banks' performance. However, they said the impact on other banks will
be limited because the proportion of Fobaproa loans to total assets at Serfin (38%) is much higher
than that of Banacci (12%), Bancomer (16%) or Banorte (6% for own risk).
In addition, they said Serfin's "cost of funds is much higher than that of the other banks, therefore the
drop in earning asset yields has a larger impact on Serfin's profitability."
Finally, Serfin's vulnerability to the fall in yields reflects "its severely weakened financial condition."
Merrill Lynch said other positive developments in Mexico should reassure investors in Mexican bank
stocks, pointing to the nearly $24 billion in international credit lines recently announced by the
government.
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