Three Mexican financial institutions: a death knell?

CI Banco, Intercam, and Vector Casa de Bolsa took a severe hit to their waterline.

The U.S. Treasury Department raised its flaming finger and pointed it at the three Mexican financial institutions.

He accuses them of being linked to drug cartels and collaborating with them in money laundering.

He links them to the crime of financing fentanyl trafficking.

Although there is no evidence to confirm the accusations made by the highest US financial authority—according to what the Mexican government has said—local financial authorities, a few hours after the allegations were made public, had to intervene managerially.

The indictment; the imminent sanction—after 21 days, a ban on U.S. financial institutions conducting business with Mexican institutions will go into effect—plus the operational and administrative changes at Mexican banks and brokerage firms represent severe blows to the most important asset of any financial company: its reputation or prestige.

The Treasury Department's accusation represents a maximum-powered shell.

Although there is no conclusive evidence to support the accusation, as the Mexican government claims, it still carries the powerful poison of doubt.

The subsequent management intervention, while positive because it seeks to protect savers and clients, indirectly confirms that such institutions do present a risk.

And consequently, judging by the immediate reactions, it seems that twice as many deaths have begun to resound, or the death knell for such institutions has begun to resound.

The most immediate consequence was recognized by the Secretary of the Treasury himself, Edgar Amador.

He acknowledged that he had monitored the three institutions involved, and they had begun to experience funding problems.

It was decided, he explained, to temporarily intervene to avoid an interruption in the banking system and protect customers' savings.

Then other serious consequences followed:

The credit downgrade by three major rating agencies; the impact, although the bans have not yet taken effect, is the impact on key business lines such as foreign exchange brokerage and international payments, and the loss of key clients in the fiduciary business, among others.

The rating agencies' announcements were immediate: Fitch, S&P, and HR Ratings downgraded the credit ratings of the three institutions.

They were also placed on negative watch due to liquidity, funding, and operational sustainability risks.

This will make access to financing more expensive and reduce creditor confidence.

Although there's still a deadline for them to come into effect, the reality is that the international restrictions will take effect immediately.

FinCEN sanctions restrict transactions with the US and affect key business lines such as foreign exchange brokerage and international payments. The loss of some clients for CI Banco, the leading bank in the fiduciary sector, was also made public. Fibra Inn and Terrafina announced their withdrawal from the institution.

Among its main clients in this business are the Afores, whose trust contracts are very likely to be migrated to other institutions.

The blow to the trust and credibility of those involved is very severe.

The uncertainty generated by the accusations and the intervention could lead to capital flight, although deposits are protected by the IPAB.

And if that weren't enough, there's the legal risk to consider.

Investigations in Mexico and the U.S. could result in fines, seizures, or dissolution, with proceedings that could take up to seven years.

The ABM and AMIB have issued messages seeking to reassure users of the financial system.

It has been emphasized that they are not systemic financial institutions.

That is, they cannot cause a crisis in the financial system.

On the other hand, some believe that new charges could be brought against other Mexican financial institutions.

For now, the conditions of growing doubt and uncertainty and the uncertain outlook for resolution are generating a negative impact that is deteriorating the three institutions.

While it's all apples and oranges, the three reputationally damaged financial institutions are already practically hemorrhagic.

Managerial intervention is positive for safeguarding the resources of savers and clients, but it does not guarantee the proper operation of these institutions.

Managerial intervention involves monitoring, supervision and investigation.

Conditions seem ripe for twice as many deaths for these institutions. Hopefully not.

In time.