Fitch: Ratings Unchanged After SanMex/Serfin Merger.

NEW YORK -- Mexico's Banco Santander Mexicano (SanMex) was recently merged with Banca Serfin and subsequently renamed Banco Santander Serfin. The merged bank's ratings remain unchanged by Fitch Ratings as follows:

-- Foreign currency long-term 'BBB-', Rating Outlook Stable;

-- Foreign currency short-term 'F3';

-- Local currency long-term 'BBB+';

-- Local currency short-term 'F2';

-- Individual 'C';

-- Support '2'.

The following ratings of Banca Serfin (Serfin) have been withdrawn:

-- Foreign currency long-term 'BBB-', Rating Outlook Stable;

-- Foreign currency short-term 'F3';

-- Local currency long-term 'BBB+';

-- Local currency short-term 'F2';

-- Individual 'C';

-- Support '2'.

This rating action follows the merger, effective Jan. 1, 2005, between SanMex (Mexico's fifth largest commercial bank) and Serfin (sixth largest), in which the former legally absorbed the latter. Following the merger, SanMex was renamed Banco Santander Serfin (BSS). The merger gave no rise to goodwill since it was accounted for as a merger of equals.

BSS is 100%-owned by Grupo Financiero Santander Serfin (GFSS), which originates from the merger between Grupo Financiero Santander Mexicano (GFSM) and Grupo Financiero Serfin (GFS), both having been acquired by Spain's Banco Santander Central Hispano (SAN) in 1997 and 2000, respectively. GFSS is currently 74.8% held by SAN, with a further 24.9% held by Bank of America.

Although SanMex and Serfin remained as separate legal entities until Dec. 31, 2004, they had been integrated both on a commercial and operational basis for a number of years. The timing of the long-awaited merger was determined by SAN as the point in time when the deferred tax credits available at Serfin were fully extinguished, which occurred in late 2004. While significant cost savings have already been derived from the joint operation of both banks, some additional synergies are expected from the merger.

Although Fitch assigned ratings to both SanMex and Serfin, these were the same, in recognition of the fact that they were being operated as a single institution and had similar risk profiles, while being owned by a common shareholder. In Fitch's view, the risk profile and prospective support for BSS from its parent remain unchanged as a result of the merger, which explains the affirmation of the ratings. Fitch notes that while the long-term foreign currency rating of BSS is constrained by the sovereign rating ('BBB-'), its long-term local currency rating is higher than that of the sovereign ('BBB') because of the strong perceived support from SAN.