Mexico‘s second-largest bank Grupo Financiero Banorte has laid off some 500 employees from recently acquired Grupo Financiero Interacciones, or about half of the specialist government lender’s workforce, with more job cuts to come, two people with knowledge of the matter said.
Banorte (MX:GFNORTEO) recently closed the $1.4 billion half-cash, half-stock deal to buy Interacciones, whose loan portfolio was overwhelmingly comprised of loans backed by Mexico’s government.
The company plans to lay off around another 300 people, one of the people added.
Banorte said in a presentation about the deal that it would cut 65 percent of Interacciones’ costs, saving between 1.5 and 1.6 billion pesos a year. Earlier this month, the former CEO of Interacciones said there could be layoffs, but did not specify how many jobs would be lost.
Gerardo Salazar, who ran the group’s bank, Ignacio Zubiria, head of the institutional business, and Adolfo Herrera, head of the brokerage, are among the highest-profile who have left, the people said.
Salazar, Zubiria and Herrera did not respond to requests for comment. Banorte declined to comment, referring to the quiet period ahead of its quarterly results.
Yiming Qian, Associate Professor of Finance at the University of Iowa, said layoffs after acquisitions were commonplace, but usually were contained to 5 percent to 15 percent. Banorte‘s reductions of Interacciones staff would reach about 80 percent if it eventually lays off 800 people, as one of the sources said was planned.
“Eighty percent is very unusual,” Qian said.
Mexican banks that focus on lending to states and municipalities have had to reconsider their business models in recent years as several states have become highly indebted and high-profile graft scandals involving their leaders surfaced.
Many businesses in Mexico are owned or controlled by families, however, the country’s banking sector is mostly owned by foreigners, including BBVA (MC:BBVA), Citi and Santander (MC:SAN). Banorte and Carlos Slim’s Grupo Financiero Inbursa are notable exceptions.
Mexican regulators approved the deal, the largest in the sector in 17 years, three days before the July 1 election.
Banorte was already the largest Mexican-owned bank and its chairman Carlos Hank Gonzalez was also Interacciones’ chief executive until 2014, while his father was Interacciones’ chairman.
Banorte‘s largest foreign institutional investors, including BlackRock and Aberdeen Standard Investments, opposed the deal, arguing that the acquisition was unnecessary and posed conflicts of interest because of family ties.
The bank said the family trust, which owns around 10 percent of the company, and others affiliated to the family, voted in line with the majority of shareholders, meaning that it did not sway the outcome.
Banorte said the deal was expected to gradually increase Banorte’s earnings per share while preserving capital strength and return on equity goals./reuters.com