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Banorte Expects Pension Buy to Allow for Dramatic Reduction in Fees

Date : 11/29/2012 @ 3:19AM
Source : Dow Jones News

Banorte Expects Pension Buy to Allow for Dramatic Reduction in Fees

--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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