IXE Could Drag Banorte Ratings

A merger of IXE with Banorte could negatively impact the latter’s ratings, according to Fitch, while the ratings of IXE could benefit in the long run. If an agreement is reached, Fitch foresees Banorte’s BBB rating being put on rating watch negative, based on preliminary conditions. Fitch says the transaction would be strategically positive for Banorte as it should enhance over time its competitive, commercial and financial position. However, in the near term, the deal could potentially have negative effects on its financial condition. Depending on the final price and settlement scheme, Banorte’s capitalization, which is already considered relatively moderate by Fitch, could be further pressured in the event that a deal comes with significant cash disbursements, ample goodwill, and/or material reduction on Banorte’s liquidity profile. Meanwhile, Moody’s says it will maintain its ratings on Banorte. Moody’s notes that the proposed acquisition is likely to have limited effect on Banorte’s financial fundamentals and franchise, based on its scenario analysis of pro-forma assets and equity of combined entities. IXE is small relative to Banorte, representing 16% of the bank’s equity as of June 30.