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SAO PAULO, Dec 19 (Reuters) - The value of Grupo Financiero Banamex SA, Mexico's second-largest bank, may not reflect issues with lower profitability, posing a barrier to a potential offer by Brazilian rival Itaú Unibanco Holding SA, Deutsche Bank Securities said in a report.
This week, Itaú Chief Executive Officer Roberto Egydio Setubal told shareholders that Banamex could be a potential way into Mexico's banking industry. Setubal said that so far there has been no contact with Banamex or controlling shareholder Citigroup Inc.
A purchase of Banamex, which has 16 percent of banking assets and 15 percent of loans in Mexico, could gain significant presence in Mexico, Deutsche Bank analyst Tito Labarta said in a client note.
Yet Banamex's weak profitability could influence how much price-sensitive Itaú would pay in a deal, Labarta said. Banamex's recurring return on equity at the end of September was 9 percent, compared with an average 13 percent to 14 percent for rivals Grupo Financiero Banorte SA and Santander Mexico Financial Group SA.
Based on price-to-earnings and book value valuation methodologies, Labarta estimates the value of Banamex ranging from $14.2 billion to $22.1 billion. However, since Itau is trading at a lower multiple, "a transaction at these levels could be dilutive" for shareholders of the Brazilian lender, he noted.
While Mexico's growth potential is better than Brazil's, "Banamex's weak profitability could be a concern in the case of a potential deal, which would likely influence the price that Itau would be willing to pay and that Citigroup would accept, if it is even willing to sell," Labarta wrote.
Itaú's interest in Banamex, for which Citigroup paid $12.5 billion in 2001, comes as Setubal seeks to build the São Paulo-based lender into the largest Latin American financial conglomerate. Itaú has wholesale banking operations in the region's main countries and is building a retail banking presence in Chile and Colombia.
Itaú wants non-Brazil operations to account for 15 percent of profit by the end of the decade. For years, high prices had hampered Itaú's attempts to purchase a rival in Mexico, Setubal previously told Reuters. (Reporting by Guillermo Parra-Bernal; editing by Andrew Hay)