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Moody's cuts Banamex rating on Oceanografia concerns

Jun 4, 2014

Investigations into alleged fraudulent lending to Pemex supplier drive downgrade on Mexican bank

Banamex's credit rating has taken a hit due to investigations into lending against allegedly fraudulent receivables, three months after allegations first arose.

Ratings agency Moody's cut the Mexican lender's foreign currency debt rating a notch to A3 on Tuesday, as a result of the investigations that it says fuel uncertainty over the bank's risk profile and taint its reputation.

The SEC and its Mexican counterpart the CNBV are investigating Banamex for allegedly lending around $400m to Oceanografia, a Pemex supplier, against fraudulent invoices.

Banamex said at the end of February that its fourth quarter results would be MXN2.88bn ($216m) lower than expected after it found evidence of fraud in its lending to Oceanografia. The bank had MXN7.65bn worth of short term loans outstanding with the Pemex supplier at the end of December, under an accounts receivable financing deal, of which just MXN2.42bn could be backed up by documentation.

"The rating actions reflect the severity of the fraud revealed in March and the subsequent revelations about the deficiencies in Banamex's risk management and auditing functions that permitted this fraud to occur," Moody's said in a statement on Tuesday.

Banamex set aside MXN2.15bn in reserves in the first quarter to offset losses in relation to the alleged fraud. The allegations of fraud have had a knock-on effect on parent company Citi, which cut its 2013 numbers by around $235m after tax.

Moody's said there could be further charges to Banamex's earnings or capital, "while the resulting damage to the company's reputation may result in a loss of business and reduced profitability."

Moody's, Standard & Poor's and Fitch affirmed Banamex's ratings in March, at A2, BBB+ and A, respectively. LF



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