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Sending Dollars to Mexico Is a Big, Lucrative Business

(Good for Mexico -- but lost dollars for the American Economy)

The New York Times, September 14, 1996

By BRENDAN M. CASE

MEXICO CITY -- Where billions of dollars flow, can Wall Street be far behind?

The migration of Mexicans across the border with the United States is now producing what some experts estimate is an annual transfer of $4 billion to $6 billion back to family and friends who are shuttling to Mexican banks and wire transfer agencies to pick up money that helps them make ends meet.

For folks like Felipe Morales, who is unemployed in Mexico City, the equivalent of the $100 to $200 in pesos he gets from his son, who is a construction worker in New York, is a godsend.

It is also producing a torrent of profits for the First Data Corp., which owns Western Union and Moneygram, and attracting new competitors, including Wells Fargo and Co. and even the U.S. Postal Service. And now Wall Street firms have devised a way to sell securities tied to the money flowing south.

The money has been moving from the United States to Mexico in such predictable amounts for the past few years that bankers and other experts expect it is destined to grow.

They also say that it reflects the evolution of a single labor market between the two countries that is generating a reliable source of dollars for Mexico.

"Why do all these companies have so much confidence in this business?" asks Fernando Lozano Ascencio, a Ph.D. candidate in sociology at the University of Texas who has studied the business. "It's because we have this transnational labor market," he said. There are millions of people in the United States "with strong family ties in Mexico and lots of money crossing the border."

In fact, the flow of money has gotten so steady that last month, in the second deal of its type, SBC Warburg Inc., the Europe-based investment bank, sold $100 million in securities tied to money moving to Banco Internacional, Mexico's fourth-largest bank, from the United States. Last year, J.P. Morgan Securities Inc. and Merrill Lynch & Co. completed a $206.5 million sale with Banco Nacional de Mexico, or Banamex, the country's largest bank.

In simplest terms, the securities allow the Mexican bank to sell a $100 million portion of its anticipated money transfers to investors before it even gets the money.

The bank will not comment on the specifics of the latest deal. But in general terms, the bank receives $100 million immediately on the promise to pay a little more than 8 percent interest in regular payments financed by the stream of wire transfer dollars. For the bank, it is one way to attract dollars and to try to make a greater profit by reinvesting the money.

The investors, which include banks, insurance companies and pension funds, expect to collect a regular flow of cash -- guaranteed by the wire transfers -- that represent the interest, plus repayment of the principal.

For years, Wall Street has used the idea, known as "asset securitizaton," as a means for banks who make auto, mortgage and credit card loans to raise money by selling a portion of the projected income on their loans.

While immigrants draw the ire of some American politicians, their money is spawning new business opportunities. "This can be a very good business and a lot of companies are just waking up to that," Lozano Ascencio said.

The U.S. Postal Service and its Mexican counterpart have just started a new electronic wire service with Grupo Financiero Bancomer, Mexico's No. 2 bank. Wells Fargo, the big San Francisco banking company, launched a competing service earlier this year with Banamex. Electronic Data Systems Inc. and other Mexican banks are said to be considering starting their own businesses.

Another company, World Center Video Conferences of Mexico City, is proposing to embellish the service by adding a brief video visit between money sender and recipients. They are talking about setting up 400 offices around Mexico linked to sites in Los Angeles, Houston and Chicago.

Immigrants from all over the world send money back home, of course, but the corporate interest in United States-to-Mexico money transfers reflects the sheer numbers of Mexican immigrants and Mexican-Americans in the United States. Estimates vary, but experts say there are about 6 million to 7 million people in the United States who were born in Mexico. From 30 percent to 50 percent of the small amounts of money sent to Mexico comes via electronic transfers.

Banco de Mexico, the central bank, estimates that the country received $3.67 billion in 1995, slightly below the level of 1994, although numbers from early 1996 indicate that this year's total could be the highest ever. But central bank officials admit their figures might understate the actual flow of funds.

"Nobody has anything but estimates, but the figure we're using for the total market is $4 to $6 billion," said Carlos Martinez, the managing director of Banco Internacional's New York office. "When you consider that oil exports are about $8 billion a year, this is an important source of foreign currency" for Mexico.

Jorge Castaneda, a well-known political scientist, says there are at least 10 million Mexicans who depend partially on money sent from the United States.

In Mexico City, Morales figures his son will eventually come back from New York, where he has worked for a year. But for now, Morales and his wife sorely need the $100 to $200 he sends them every month. "It helps us eat," Morales said. "It helps with the electricity bill, the water bill. Here, there's no work." He picked up the equivalent of $100 in pesos, or two months' pay at the Mexican minimum wage, at the local branch of Elektra, an electronics, home appliance and furniture chain that is an agent for Western Union in Mexico.

While Morales covers his living expenses with the money he receives, another Elektra customer reports that his brother-in-law sends home between $200 and $300 a month from California, not just to help his family but also to finance construction of a new house.

There are currently two major wire transfer companies, Western Union and Moneygram. Both are units of First Data, which is negotiating to sell one of them to comply with the terms of the 1995 merger that brought the companies together. First Data is based in Englewood, Colo.

There are plenty of opportunities to make money on the movement of money. Fees for Western Union's Dinero en Minutos service, or "money in minutes," are on a sliding scale.

It costs $17 to send $100, and $29 to send the average amount of $300. Companies accept dollars and deliver pesos, often changing the money at a rate 6 to 10 percent higher than prevailing foreign currency exchange rates. And if recipients do not pick up the money immediately, the transferring company can earn interest on the funds.

Western Union also offers a slightly cheaper wire service that takes several days. Wire transfer companies have limits on how much money can be wired at once, to guard against money laundering and other fraud.

Other funds arrive by money order, personal check, money sent back with traveling friends, even envelopes mailed stuffed with cash. But a desire for speed and safety, as well as the high cost of cashing checks and money orders for Mexicans without a bank account, have contributed to the growth of speedy wire transfers since Western Union introduced Dinero en Minutos in late 1993.

Safety and convenience are considerations for Evaristo Vega, 30, a machinist, who was in Santa Ana, Calif., last Thursday sending $150 to his father, Flavio, in Mexico City. The younger Vega said his father needed his monthly wire transfer to live on. He does not send money by mail because a check is difficult to cash and he suspects that postal clerks open correspondence.

"Our business has been growing at a rate of 30 percent for the past few years, and I think we'll see the same thing this year," said Elias Mercado, Western Union's vice president for Hispanic business development in Englewood. Potential competitors "are clearly seeing an opportunity to get into a high-growth part of the market."

Customers say that established wire transfer companies have a few bugs to work out. One woman said a relative sent a particularly large amount of money once and the transfer service took two days to come up with the money.

"We're interested above all in speed," said Amada Morales, Felipe's daughter. "My mother is sick, and if we need to buy medicine, we can just pay for it with this money."

Copyright 1996 The New York Times