Mexico's Supreme Court Slams Slim

| May. 6, 2011 |

Published by Minyanville

The Supreme Court in Mexico has stamped down on world’s richest man Carlos Slim’ America Movil (AMX), saying that recent watchdog rulings cannot be ignored. The company has been in much trouble recently on allegations of anti-competition practices. At the end of April, subsidiary Telcel was forced to pay a $1 billion fine for monopolistic practices which allowed it a 71% market share in Mexico.

Interconnection fees charges to rivals were the subject of the action. Competitors claim the charges are too high. Telcel, which the action was filed against, attempted court injunctions against Mexico’s Federal Competition Commission (CFC) to hamper its efforts. The Supreme Court, however, stepped in this week to claim these injunctions were not acceptable.

“Recent rulings by the Mexican regulatory agencies and the Supreme Court point towards difficult operating conditions for America Movil,” read a Deutsche Bank report. However, it continued: “After digging deeper in to the issues our conclusion is that any financial impact on [the company] in the medium term should be limited. We thus see recent correction in the stock a good buying opportunity.”

Central Bank Buys Gold

The Bank of Mexico bought just under 100 tons of gold in February and March this year. This is thought to be another signal that emerging markets are steadily increasing their gold reserves. The Bank traditionally holds most reserves in US dollar-denominated investments.

Gold reserves in the country stood at just 6.9 tons in January. A statement from the Bank said that the purchase is part of a wider project to diversify assets.

"Mexico seems to be following the trend established by several other central banks recently and is moving toward restoring a prior balance between gold and currency reserves," George Milling-Stanley, managing director of government affairs at the World Gold Council told the Wall Street Journal.

“Central banks have good reason to buy gold,” added Peter Morici, a professor of business at the University of Maryland in College Park and a former economic adviser to the US government, when talking to Bloomberg.

“The dollar is no longer a safe asset for backing currencies. Treasuries are not a sound investment.”

More than $30 billion worth of gold was sold off by Mexico between October 2008 and October 2009 in order to shore up the currency during the global financial crisis. This diversification of assets will protect against future crises.

Meanwhile investors around the world paid attention when Carlos Slim began selling silver futures on Wednesday.

Mexican Stocks Sink; BBVA Offers Bright Spot

Mexican stocks hit their lowest level this year on Thursday, again demonstrating the coupling of its economy with that of the United States. The IPC index fell 0.6% to 35,325 points on 210.4 million shared at $533 million. It was the fourth fall in a row thought to be down to weak US data which led to a downward correction in commodities such as oil and metals, according to the Wall Street Journal.

The metal-slump led to silver and gold miner Industrias Penoles to fall 4% with copper miner and railway operator Grupo Mexico (GMBXF) following suit with a 2.1% slump on Thursday.

Even the relatively strong Wal-Mart de Mexico (WMT) fell 1.5%, as well as Alfa (ALFA) down 2.3%.

It had to be Carlos Slim’s America Mobil which broke the trend, gaining 0.2%. However, this was more a balancing of the previous days’ falls after the Supreme Court ruling against the company.

Cemex (CX) shares rose 0.3% but this was again after a trough in share-prices for the cement manufacturer. The giant narrowed losses to $276 million in the first quarter of 2011, compared to $342 million losses in the same period of 2010. Sales increased $3.4 billion in the first quarter, up 11% on last year.

Sales north of the border did fall 8%, however, to $507 million. This was offset by a 24% hump in European sales to $1.2 billion. Sales were also up in Latin America.

Mexico’s largest bank BBVA (BBVA) did have good news this week, announcing after-tax net profits up 17.2% to $603 million during the first quarter. The news came despite a 0.2% drop in commissions on traditional banking services following new regulations enacted in January limiting the fees and penalties banks can legally charge customers.