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NAFTA and elections aside, Citi CEO sees bright future in Mexico

Citigroup Inc. CEO Michael Corbat acknowledged possible threats to the Mexican economy, but he said the banking giant's business there should continue to be a vital growth driver as that country's middle class continues to expand.

U.S. President Donald Trump has threatened to pull out of the North American Free Trade Agreement, or NAFTA, a development that would directly affect trade with Mexico and could pack on expenses for Mexican businesses that export products to the U.S. That could result in higher prices for Mexican consumers, who collectively are an important source of revenue for Citi. Mexicans also will elect a new president this summer, and the possibility for policy changes following an election always adds an element of uncertainty for business owners.

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Citigroup CEO Michael Corbat

But, speaking at a conference hosted by Sanford C. Bernstein on May 30, Corbat said Mexico would continue to play an outsized role in the bank's growth. He said that, with U.S. midterm elections fast approaching this fall, any changes to NAFTA are likely to get pushed to 2019, and even then, he thinks the most likely outcome is that the existing trade agreement will stay in place. If there are changes, he said, Mexico's burgeoning economy, competitive labor force and steady momentum in the growth of its middle class should help it adjust to trade challenges and continue to advance.

Mexico's middle class, as a share of its total population, has grown from less than a fifth at the start of this century to more than a fourth today, according to studies by the Pew Research Center. Corbat said it continues to swell.

Citi, a multinational bank that also has a prominent Asian footprint, grew its consumer banking business in Mexico by about 6% in 2017 and by 8% in the first quarter of this year, Corbat said. That first-quarter rate was better than Citi's growth in the U.S. and Asia, and it was nearly twice the annualized growth rate of Mexico's gross domestic product during the first three months of 2018.

"Clearly, there's some upheaval, some uncertainty in terms of elections, in terms of NAFTA, but we've actually seen consumer confidence, consumer spending very high," Corbat said.

"So while the economy could slow, either on the back of no NAFTA or renegotiated NAFTA or an outcome of a presidential election on July 1, we still believe that the banking market and our consumer franchise have the ability to grow at a multiple of GDP," Corbat continued. He added that Citi's revenue growth rate in Mexico is likely to remain "faster than most places in the world."

Corbat said Citi is in the midst of investing $1 billion into its Mexican franchise. It is spending on new technology, branch refurbishments and other infrastructure upgrades, as well as on bankers.