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By Guillermo Parra-Bernal
SAO PAULO, Dec 19 (Reuters) - The value of Grupo Financiero Banamex SA, Mexico's second-largest bank, may not reflect its 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 provide a potential entrance into Mexico's banking industry. Setubal said so far there has been no contact with Banamex or controlling shareholder Citigroup Inc.
Banamex, which has 16 percent of the banking assets and 15 percent of the loans in Mexico, could give Itaú a significant presence in the country, Deutsche Bank analyst Tito Labarta said in a client note.
Yet Banamex's weak profitability could influence how much price-sensitive Itaú would pay, Labarta added.
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 SAB de CV and Santander Mexico Financial Group SAB de CV.
Based on price-to-earnings and book valuation methodologies, Labarta estimates Banamex's value at between $14.2 billion and $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 have hampered Itaú's attempts to purchase a rival in Mexico, Setubal previously told Reuters.
Itaú shares closed up 1.6 percent at 34.80 reais on Friday. The stock is up 24 percent this year. (Reporting by Guillermo Parra-Bernal. Editing by Andrew Hay and Andre Grenon)