NEW YORK (Reuters Blogs) -- A couple of weeks ago, I was at a lunch discussion of immigration policy, of all things, in which I defended Citigroup's decision to move various risk-management operations from New York to Mexico. I was talking to a woman who was complaining about the move and about the amount of time that the Mexico office would sometimes take before arriving at a decision. But my view was that moving such operations to Mexico was probably a good thing, on net. After all, Citi's Mexican bank -- Banamex -- is one of the most efficient banks in the Americas, and makes a lot of money while taking very little in the way of risk. And on the other side of the trade, the New York office was precisely the place where Citi's risk management was worst. After all, it was New York which missed the entire subprime problem, along with many other incidents in which Citi managed to blow itself up.
Now, however, it seems that Banamex has a level of risk management which is bad even by Citi standards. Recently, a Reuters report showed how Banamex managed to lose some $85 million making bad loans to homebuilders, despite opposition from the head office:
The $300 million in loans were made starting in 2009. Bank executives at Citigroup in New York turned down at least some of the business because it seemed too risky, two sources involved with the lending process said...
New York balked, but the bank's Mexican subsidiary, Banco Nacional de Mexico, better known as "Banamex," went ahead and lent to the homebuilders. Banamex, which is the second-biggest bank in Mexico with 1,700 branches, has room to make some loans that do not get vetted by New York, as long as its overall portfolio is safe enough, the sources said.