The Technical Process of Bank Privatization in Mexico
Wharton Working Paper 97-42
36 Pages Posted: 21 Jan 1998
Date Written: July 1997
Roughly eight years after the Mexican banks were nationalized, former President Carlos Salinas de Gortari submitted to Congress on May 2, 1990, a constitutional amendment to re-privatize commercial banks. In the course of fifteen months thereafter, controlling shares of 18 banks with aggregate assets of $128 billion were auctioned for $12.4 billion. Mexico's experience with bank privatization is considered to be very successful and stands as an example to other countries considering the privatization of their banking system. Clear objectives and the adoption of transparent and credible procedures are frequently cited as the basis for the effectiveness of the Mexican program (Barnes, 1992). Surprisingly little has been written documenting the great length to which the Mexican government went through to ensure due procedure and transparency through the entire bank privatization process. Hence, the first objective of this paper is to provide a clear and concise review of the technical process describing how Mexican banks were privatized. Specifically, the paper illustrates the procedures followed in the valuation of the banks, the registration and approval of the parties interested in acquiring these institutions and the sale of the government's equity interest. Second, we review the bidding structure for each privatization case in detail. The paper also provides an estimate of the market values for 12 banks, at the time of their auction, by examining their share prices in the vicinity of the auction time. We report that on average the winning bidders paid a 45 percent premium over the banks' estimated market values.
JEL Classification: G21, L33
Suggested Citation: Suggested Citation