Citigroup’s acquisition of Banamex, the second-largest bank in Mexico (see story, page 39), has transformed Victor Menezes into one of the most powerful financiers in Latin America. The takeover also cements his growing power within Citibank where he was recently named chairman and CEO with special responsibility for the bank’s business in 79 emerging market countries. At $12.5 billion, the Banamex purchase is by far the largest such investment Citigroup has ever made.

Overnight, the deal catapulted Citibank into the largest bank in Mexico and doubled its profits in Latin America to about $2 billion a year. The decision to buy Banamex is a bold commitment to Mexico and to emerging markets. Citigroup – the parent company of Citibank – expects to earn a growing proportion of its profits in fast-growing but risky emerging markets.

Successfully integrating Citibank’s Mexican operations into Banamex will be a major personal challenge for Menezes, who has spent his entire career at Citibank. He will personally oversee the bank’s operations from his office at Citigroup headquarters in New York, a break from past practice. Until now, regional heads based in Miami managed Citibank’s consumer and corporate business in Latin America.

Menezes, an Indian born in Pune 52 years ago, is no stranger to Latin America. He first set foot in the region in 1985, following his promotion to senior corporate officer for Latin America and Africa. Menezes left the region in 1989 to continue his rapid ascent at Citibank. From Latin America he moved to Brussels as head of the bank’s European consumer business. In 1991, he also became responsible for the US consumer banking franchise and four years later he became chief financial officer for Citicorp. Then, in 1998, following Citicorp’s merger with Travelers Group, he became co-chief executive of the new group’s combined investment bank and corporate business. Soon after, Menezes vaulted to head of emerging markets at Citigroup.

He made one of the most difficult and controversial decisions of his career during his first stint in Latin America. It was the height of the Latin American debt crisis and it looked as if several big US banks could collapse under the weight of their rotten Latin American loans. Citibank was among the biggest lenders and most exposed to further debt defaults. On the recommendation of Menezes, the board of Citibank decided to write off $3 billion in loans to Latin American governments. He says that decision “changed the negotiations. It proved that default would not drive us to the wall.” Instead, the $3 billion provision helped shift the balance of power in favor of the banks during the talks. The debt crisis ended in 1990s with the advent of the Brady Plan, although banks still suffered a reduction in principal and interest on their original loans.

That experience brought home the dangers as well as the opportunities of doing business in Latin America. Today, Argentina is teetering on the brink of a debt crisis that could affect the whole region. In 1999, Brazil’s currency lost one-third of its value in a financial crisis. Six years ago, Mexico had to devalue the peso, unleashing a severe crisis that devastated its financial industry.

A satisfactory outcome of the crisis in Argentina, one of its most important markets in Latin America, a region where Citibank earned almost $1 billion in 2000, is of obvious importance to the bank.

Yet Menezes shrugs off the trouble in Argentina. “We have been in Latin America since 1914, so we have seen many cycles,” he says. “We have been through good times and bad times. What happens in the [down] cycle is that you get a flight to quality and this brings us more business.” Clients tend to flee weak banks during a crisis, taking their business to stronger ones.

He says “consistency of strategy” has worked in the bank’s favor over the years. This strategy is to expand whenever possible, making the most of opportunities as they arise. Although Citibank wrote off $3 billion in Latin sovereign debt in 1985, it continued to expand its local market franchise. Today, Citibank is the only bank with an integrated network across the region.

That approach remains unchanged now. The bank already had a solid position across most market segments in Argentina and following the acquisition of Banamex enjoys a dominant position in Mexico. The franchise in Brazil is patchier. Citibank has built up a large and lucrative corporate banking franchise in Brazil, but has not managed to expand forcefully into retail banking. “Brazil and Mexico are key countries for us and you will see us investing and growing our franchises there over the next five years,” says Menezes.

Citibank missed out on a carnival of acquisitions in Brazil during the 1990s as the government sold off failed private banks to mainly foreign acquirers. Citibank stood on the sidelines as ABN AMRO of the Netherlands, Britain’s HSBC and the two Spanish rivals Banco Santander Central Hispano and Banco Bilbao Vizcaya Argentaria built up retail networks in Brazil.

There are few obvious acquisition targets left in Brazil, but as Citigroup has just shown in Mexico, it has sufficient financial resources to make massive commitments when the opportunity arises.