Deal Book Says Citi “Cannot Afford” to Run an Honest Bank in Mexico

By William K. Black

Deal Book, Andrew Ross Sorkin’s ethics-free paean to painless elite bank frauds – all the wealth and none of the accountability – has plumbed new depths in its coverage of Citi’s latest frauds.  It has literally written that Citi “cannot afford” to run an honest bank in Mexico.

I’ll put aside for another day the obvious point that Citi does not run an honest bank in the U.S. so the authors’ implicit assumption that Citi’s problems arise from a corrupt Mexican culture is false and bigoted.  For purposes of analysis only, I will discuss the logical implications of the Deal Book’s “Blame it on Mexico” thesis. That thesis does not lead the NYT authors to ask Citi’s leaders to discuss which of three options it chose given that it cannot afford to run an honest bank in Mexico.

  • To run an honest bank in Mexico anyway, or
  • To lead a movement to clean up banking and politics in Mexico, or
  • To stop banking in Mexico

Instead, the NYT moves on – nothing to see here.  Deal Book and Citi’s leaders are not comfortable with this foreign concept of ethics.  Deal Book puts what it cares about in the title of its article:  “Another Scandal Hits Citigroup’s Moneymaking Mexican Division.”  Well, if fraudulent banking is “moneymaking” that makes it completely different.  Indeed, Deal Book emphasizes that Citi’s fraudulent and corrupt Mexican operation is not merely “moneymaking,” it “mints money.”

“[Citi] is wrestling with how to get its house in order in one of its oldest foreign operations. A crucial part of that decision rests on how to nudge aside the most powerful executive overseeing Mexico, a country where Citigroup has been doing business since 1929.

What makes that decision particularly difficult is that the Mexican unit, Banamex, mints money.”

I will make a brief interjection as a criminologist with a research specialty in elite white-collar crime, particularly in finance:  such a fraud often “mints money.”  If Deal Book believes that the fact that fraud and corruption typically “mints money” logically makes a “decision” by Citi to end the fraud “particularly difficult” then that belief damns Citigroup’s leaders and Deal Book.  Stopping fraud and corruption in a bank’s operations should be the paramount task of the bank’s leaders.  The fact that the fraud and corruption “mints money” for a bank should be irrelevant to the “decision” by the bank’s leaders about how to respond to fraudulent and corrupt bank actions.  The “decision” by the bank’s leaders about how to respond to a fraudulent and corrupt bank operation that “mints money” should not be “particularly difficult” – it should be among the easiest decisions they make all year.

I know that Citi’s leaders and all but two of Deal Book’s writers view what I am about to write as so naïve as to cause them to doubt what planet I inhabit, but I think that the fact that corporate fraud frequently “mints money” is one of the principal reasons that it is easy for honest CEOs to refuse to countenance fraud by their firms.  They know that the fact that fraud and corruption “mints money” for the firm and the officers means that it wrong and means that if it not stamped out by the CEO it will cause vast harm to the public and, if there is any functional rule of law, it will eventually harm the firm.  An honest bank CEO understands that she “cannot afford” to tolerate fraud and corruption.  The worse the fraud and corruption, the more likely it is to “mint money” for the bank – right up to the point that someone begins to enforce the rule of law.  At that point, the worse the fraud and corruption the bank engaged in the worse the bank’s fate.  That is why the more profitable the fraud is for the ban the less the bank can afford the fraud to continue.   We haven’t had an Attorney General for many years willing to enforce the criminal laws against elite banksters and the banks they control.  The fact that elite banks and bankers can get away with committing a fraud that “mints money” should not, however, make the “decision” whether to allow fraud and corruption “particularly difficult” for an honest CEO.

The basis for Citi’s top managers’ decisions on where to operate in the world is based on reported profits.

“In other less profitable parts of the world, Citigroup is retreating. On Tuesday, the bank announced that it was selling its consumer business in 11 markets, across Latin America, Asia and Europe.”

Citi is getting out of banking in countries where it loses money and continuing to operate in a nation where it is profitable because of fraud and corruption that it “cannot afford” to end because it “mints money.”

“Mr. Medina-Mora’s business acumen and connections to the country’s ruling elite have made him critical to the bank’s success in Mexico. Citigroup and its chairman, Michael E. O’Neill, cannot afford to alienate Mr. Medina-Mora and risk jeopardizing those relationships, these people said. But the latest problems uncovered at Banamex are augmenting concerns about lax controls and oversight in Mexico.

Banamex has “lax controls and oversight” because Medina-Mora had decided to have “lax controls and oversight.”

A Bank Operation That “Mints Money” Is Too Good To Be True

The fact that Banamax reports that it “mints money” should be of great concern because it is “too good to be true.”

“Since the financial crisis, Citigroup executives have been trying to winnow the bank’s business lines and hone its strategy to focus on investment banking and more affluent consumers, particularly in the United States. That effort to simplify its operations gained urgency earlier this year after the Federal Reserve rejected the bank’s capital plan, citing concerns about its projections for potential losses in ‘material parts’ of its global operations.”

Let’s put together the intersection of finance, banking, and criminology required to analyze Deal Book’s presentation of the facts.  I’ve explained the criminology – an operation that “mints money” is most likely fraudulent.  Under finance theory, there are only three ways that a non-fraudulent banking operation “mints money.”  The banking operation could involve extreme risk.  Such extreme risk may for a time produce very high reported profits, but it also creates a substantial risk that of causing major losses – precisely the risk the Federal Reserve warned about.

The second possibility is that the bank has exceptional market power.  It can overcharge for loans and underpay depositors, producing a far larger spread and profits.  This kind of monopoly and monopsony power should be made illegal under the antitrust laws.  It would be unambiguously harmful to Mexico and Mexicans.

The third way to mint money in banking is to be a predatory lender.  Absent extreme market power, consumer banking should be a relatively low profit operation.  The Deal Book article states that Citi is ending consumer banking operations in less affluent nations such as Mexico and concentrating on more profitable private banking operations for the affluent in America.   Citi’s operations in Mexico are primarily for less affluent customers.  The Deal Book article also states that Citi is moving away from commercial and consumer lending because of their relatively low profitability in favor of investment banking.  All of this indicates that Citi’s Mexican lending operation cannot “mint money” because it is involved in a highly profitable form of lending.  A lender can, however, “mint money” through predatory lending if it can convince consumers to overpay substantially to borrow money from Citi.

Whether Citi’s Mexican lending reports that it “mints money” due to fraud, making extremely risky loans, possessing exceptional monopoly power, or predatory lending (or some combination) the reported ability to “mint money” should have immediately put Citi’s top leaders on notice that they had an enormous problem.  It is nothing short of amazing after the experience of the financial crisis that Deal Book journalists, the purported experts on finance, still ignore the most useful lesson they should have learned from that crisis.  They still ignore the fact that exceptional reported banking profits are the most valuable warning signal because they are typically “too good to be true.”  Deal Book thinks that a bank operation that “mints money” must be a great bank.  Under that theory we know a bunch of great banks – Fannie, Freddie, AIG, WaMu, Countrywide, Bear Stearns, Merrill Lynch, Lehman, and the big Irish and Icelandic banks, as well as Northern Rock – and Citi.


Citi does, eventually, close down the specific fraudulent operations in Mexico that it detects – many years after those frauds begin.  Citi also calls those fraudulent operations “rogue” operations.  That means that Citi does not have to remove Medina-Mora from control and bring in a leader of Banamex that would actually prevent its recurrent, lengthy, and massive fraudulent operations that “mint money.”  Citi and Medina-Mora get plausible deniability.  The question is how many massive frauds do Citi and Medina-Mora get to label “rogue” operations before even Deal Book refuses to swallow the excuse?

4 responses to “Deal Book Says Citi “Cannot Afford” to Run an Honest Bank in Mexico

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