Banorte CEO Embraces More Consolidation Of Mexican Pension Funds

Mexico's Grupo Financiero Banorte SAB de CV (GBOOY, GFNORTE.MX) hopes to take part in further consolidation of Mexico's pension fund industry, Chief Executive Alejandro Valenzuela said Tuesday.

Banorte has received regulatory approval to combine its pension fund with that of the Mexican social security institute, IMSS, to create the country's fourth-biggest pension fund by assets, to be called Afore XXI Banorte.

"This is a business of scale," Valenzuela said at a press conference, adding that he expects the ranks of Mexico's 13 remaining pension funds, known as Afores, to soon be reduced to seven or eight funds.

Pedro Ordorica, president of Mexican pension fund regulator Consar, agreed that more mergers and acquisitions should be forthcoming for the sector.

Mexican Afores had 1.57 trillion ($116 billion) in assets under management spread among more than 42 million individual accounts as of end-October.

Combined, Afore XXI Banorte will manage around $15 billion in assets for more than 7 million clients. Francisco Rodriguez, director of the IMSS Afore, said the combined fund is likely to attract 400,000 new accounts in 2012.

Banorte agreed in October to purchase Prudential Financial Inc.'s (PRU) 50% stake in IMSS's Afore XXI for about $200 million. The merger of the two funds is expected to be finalized by mid-January.

Daniel Karam, director of IMSS, said the greater scale achieved via the merger will allow Afore XXI Banorte to offer lower commissions than either of the two funds offer separately.

Afore XXI Banorte expects to charge clients an annual commission of 1.33% in 2012 versus 1.4% currently for the IMSS fund and 1.48% for the Banorte fund.

"The competition that we are driving within the pension fund system will benefit workers and keep pushing commissions lower," Karam said.

The average commission charged by Mexican pension funds is 1.48%, while the average return for the 36 months ending Oct. 31 was 13.36%.

The two largest fund managers are Citigroup Inc.'s (C) Banamex, with MXN263.6 billion under management as of the end of October, and Banco Bilbao Vizcaya Argentaria SA's (BBVA, BBVA.MC) Bancomer unit with MXN235.2 billion.

-By Amy Guthrie, Dow Jones Newswires; (5255) 5980-5177, amy.guthrie@dowjones.com

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