With technocrats coming into power in the eighties, businesses grew in the country. The barons of wealth emulate the characters in the book Gog, by Giovanni Papini, author of Don Quixote of Deception. In this work, the Florentine author wrote:
This month I bought a Republic. A costly caprice, but one that will not have imitators. It has been a desire of mine for some time and I wanted to liberate myself from it. I figured that owning a country would be something I might like.
The opportunity was good and the matter was settled in a few days. The president was up to his neck in water: his ministry, composed of his clients, was a danger. The Republic’s coffers were empty and new taxes would have been the sign of the collapse of the whole clan that was in power, perhaps a revolution. There was already a general who was arming bands of regular people and promising positions and jobs to the first comers.
An American agent who was at the scene told me the Minister of Finance rushed to New York; in days we agreed. I advanced a few million dollars to the Republic, assigned a President and all the ministers and their secretaries and doubled the emoluments received from the State. I have the collateral—without the people knowing—from customs and monopolies.
I’m just the incognito king of a small Republic in disarray, but the ease with which I managed to dominate and the evident interest of all initiates to preserve secrecy makes me think that other nations, perhaps more extensive and important than my Republic, live, without realizing it, in a similar unit of foreign sovereigns. Still needing more money for my acquisition, instead of a single owner as in my case, I will try trusts - a syndicate of businesses, a small group of capitalists or bankers.
But I have grounds to believe that other countries are run by small committees of invisible kings, known only by their trusted men, who naturally continue reciting the legitimate role of chiefs.
In a very similar fashion, on May 28, 1984, two days before he was killed, the journalist Manuel Buendía wrote about the creation of a company incorporated under the acronym LESA of C. V. (Libre Empresa S.A. de C.V.)29 in his column for the Red Privada. It would be headed by Emilio “The Tiger” Azcárraga and other conspicuous representatives of the Mexican plutocracy who had been named in it, including billionaire Carlos Slim Helú, Roberto Servitje, Abel Vázquez Raña, Antonio del Valle, Antonio Madero, Xavier Autrey, José Luis Ballesteros, and Juan Diego Gutiérrez Cortina, among others. They would buy all the government enterprises and create an anonymous society for it, with capital formed with an initial contribution of MX$25 million from each of its members.
Encouraged by the neo-liberal policies of Miguel de la Madrid, entrepreneurs everywhere sought to acquire all public sector enterprises controlled by the state. LESA was a sign that he had private investors.
During the cycle of technocrats in power (Miguel de la Madrid, Salinas de Gortari and Ernesto Zedillo), the largest privatization process in the history of the country took place.
Among waste and political interests, MX$10 billion was allocated to the Solidarity Program. A total of MX$35 billion was raised from the sale of public sector enterprises and financial institutions, as stated in a report from the specialist firm White and Case (Wac). During the period of 1982 to 2000, the government sold 75,000 state enterprises and banks.
For some analysts, this policy served to contribute to the improvement of the economy and financial and social investments. From the perception of the trade publication Tribune Desfosses, “For the Mexican government, privatizations were a crucial axis of its policy of economic restructuring (which ended the fight against inflation) and external debt reduction.”
During the Salinas administration, the largest number of privatizations occurred, which in financial terms was equivalent to eighty-nine percent of International Reserves of the Bank of Mexico.
The extraordinary income obtained through the process of divestiture of non-strategic public entities or of priority, including those derived from the liquidation of the FICORCA (Trust for Hedge Funds), was more than MX$30 billion.
These resources helped to strengthen the country’s financial assets. The income generated from the sale of companies and banks allowed the government to avoid wasting the Bank of Mexico’s reserves.
With the privatization that took place in these six years, the process of concentration and capitalization of financial groups accelerated. The number of industrial and commercial groups grew significantly as well as “financial groups” composed of a majority of banks, brokerage firms, insurance, bonding, money exchange, and stock market trading. Of these, only six financial groups came to control eighty percent of the country’s financial assets. These groups also established economic ties with the ten most powerful industrial and commercial groups, which by the mid-eighties were already concentrated to about sixty percent of the loan awarded nationally and ninety percent of international financial flows.
All of this was possible thanks to the takeoff achieved during the administration of De la Madrid. Under his leadership, the government injected a stream of funding channeled by the bank into the economy and multiplied the private sector.
Entrepreneurs resurfaced, as did the privileged elite thanks to economic and financial reforms promoted by the government. This shift radically changed the economic conditions in the country.
Later, in the administration of President Carlos Salinas de Gortari, the corporate sector was consolidated, leading to a true plutocracy.
The Salinas reform ensured that shareholders maintained control of their capital, even with investments as small as 5.16 percent. With Telmex, Grupo Carso won fifty-one percent of the vote. In the case of financial groups, they assumed control of investment banking institutions from five to twenty percent, on top of achieving an international scale by strategically partnering with foreign capital.
Government support was crucial for entrepreneurs. Thanks to the new economic policy on debt, business groups arranged special support through financial subsidies to big business consortiums by the FICORCA or were acquired by the state. Meanwhile, public sectors with severe financial problems were reorganized and then privatized. This trend continued with the governments of Ernesto Zedillo and Vicente Fox, excelling in the latter case due in part to the expropriation of sugar mills.
In Mexico, the elites of power and money have a basic agreement that guides economic policy. As a consequence however, businessmen did not accept the policies of the government and politicians. The government meanwhile demonized the entrepreneurs by deeming them disloyal to the country.
The period of greatest tension came in the government of President Luis Echeverría when a more open political activism arose on the part of employers. The most explosive case happened with the bank expropriation during the government of President José López Portillo. Until then, social balance was the main problem faced by the government, arising from the Mexican Revolution.
Beginning under President Miguel de la Madrid, international economic changes started to add up while internal economic changes promoted by the new governance group led to a national financial oligarchy. The oligarchy had direct involvement in decisions about economic policy that effectively changed the direction of the nation.
During the government of de la Madrid, there was a major shift in national life and the governance of the country. With the new government, the rules of the game changed and the pattern of economic policy consisted of postponing social engagements. The reorganization went deep and the state was subjected to a rigorous diet to shed some weight, starting with the re-privatization of banks and the sale of public sectors. For businessmen, this new economic project in the country was almost paradise. With the change, the privileged benefited at the expense of the rest of the population.
During the administration of President Carlos Salinas de Gortari, economic transformation of the country responded exclusively to integration in the US economy, leading inexorably to Mexico’s absolute dependence. In his six-year administration, President Ernesto Zedillo continued this policy but sought new markets for increased economic viability of this new model in order to attach it to the trends of the global economy.
Prior to the expropriation of the banks, four brokerage firms controlled forty percent of the shares traded on the Mexican Stock Market. And before the 1987 boom, they controlled 65.4 percent of the shares until the bubble burst, leading to the historic collapse of the exchange in autumn of that year. According to experts, it stemmed from the speculation of thousands of inexperienced investors who were attracted to the illusion of strong returns. Within days, the Mexican Stock Market lost MX$35 billion (US$2,792,164,973.39). That figure represented twice the amount for payment of annual interest on debt, or a quarter of the value of production in the country. It also represented the equivalent of oil exports for one year. However, in a more general environment, those who profited from trading were the owners of brokerage houses. They were also the owners of major companies listed on the Mexican Stock Exchange and resorted to the commercial financing through the issuing of shares, bonds and commercial paper in an amount equivalent to fifteen percent of all lending by commercial banks in that year.
During this period of transformation, various business groups emerged such as those belonging to Slim. They were able to decipher the codes of the economic project of technocrats. The tycoon attributes the origin of his empire to common sense, or knowing how to buy during a crisis.
For example, even before the eighties, Slim already controlled a consolidated industry and one of the nation’s largest enterprises, though not as a magnate with a dynasty like those of Garza Sada or Azcárraga. At the time, he had a high percentage of Cigatam (seventy percent), Mexico’s largest cigar company, which he had acquired in the midst of the six-year Lopez Portillo economic crisis; a time when the big businessmen had overtaken the country’s capital.
During the “lost decade” of the eighties (from 1981 and 1986), Slim knew how to seize the moment amidst the crisis and started buying up companies. In doing so, he fully repeated historical cycles by great investment masters like Paul Getty and the investor Warren Buffett to amass great fortune.
For Slim, the difference between an investor and a speculator is very clear. In his view, “The investor seeks to do business when it conveniences him, and the speculator makes a shorter term investment, like a sort of financial Rambo.” In Slim’s practice, he was able to take advantage of his ability to sniff out major investments, even during a time of crisis.
During the crisis of the eighties, Slim bought the banker Manuel Espinosa Iglesias’s business out of the blue.
In his memoir, Bancomer, Achievement and Destruction of an Ideal, Espinosa recounts that he was stripped of his assets by a “business decision” made by President José Lopez Portillo and Miguel de la Madrid. Espinosa Iglesias tells that when the crisis blew up in the hands of Lopez Portillo, in his desperate desire to save his presidency image, he ordered the expropriation of banks:
It didn’t matter to him to attribute responsibilities to the private bank that he didn’t have, nor to destroy the work and reinforcement of many people over many years of work.
In my case, as I have said, it was the sum of work of my whole life. Perhaps this is why they stole from me more than anyone else. I cannot yet fully understand how he could let this happen.
Espinosa did not have a good relationship with De la Madrid. As an ex-banker, he was a nobody. In one excerpt, he notes that he proposed, in a fair and reasonable way:
To distinguish money that was the bank’s, separate them from businesses and banks; refresh the latter to their original owners and forget the value that the primaries could obtain. Only this was the solution I proposed to Lopez Portillo before his term ended, De la Madrid and his officials refused to recognize its merit and decided to spoil it.
As I reflect on the distress and anguish that seized me in those days, I’ve come to realize that there was another factor that contributed to the worsening thereof: I could not help feeling that the money I had received in compensation was bad money, ill-gotten. How could I enjoy that shareholder capital while hundreds of minor shareholders were worse off than me? In that sense, I found myself in a unique position, because unlike other directors who participated in the negotiations, I personally knew the majority of shareholders who were provincial advisors or bank employees. I had a duty to worry about them and defend them, but outside of the proposal I made to López Portillo, and that De la Madrid rejected, I could not do anything else.
The sum of these two emotions—to feel that I could not do anything and that I had in my possession a capital that I didn’t have full rights to—led me to sell companies in the group, two to the engineer Carlos Slim, and three to Roberto Hernández. As I wanted to get rid of them, I sold them at the price at which they would buy them. These groups are not comprised only of Bancomer and Bancomer Brokerage Firm, but many other important companies. Given my mood, I sold everything without paying attention to detail. For a couple of years, I only retained companies of the first group, chief among them the mining FRISCO, and made it the starting point to form a major mining group. My efforts, however, were met once again with refusal and rejection.
In effect, Espinosa admits that he had the disaffection of Miguel de la Madrid against him, who had ordered him not to sell any mines. Espinosa Iglesias recounts, “Slim was once again the buyer of FRISCO, who besides being the owner of the brokerage firm Inbursa, also owned Cigatam and in turn Marlboro and some shares of Sanborns. By then, he also owned other companies I had sold him. Slim is an extraordinarily capable businessman, and I am very pleased that at least part of what I sought to do with my work ended up in the hands of a capable man.”
The acquisition of companies of what was once the emporium of Espinosa was consolidated by Grupo Carso as a giant project undertaken by the mega-rich Slim.
The old guard of the business community had somehow been learning from Slim, who raised his fortune immeasurably since the nineties. The richest man in Mexico, he had begun to build his great capital in the stock market boom of the eighties. So, while many of the industrial families were entrenched in the crisis and had to restructure their debt and sell their shares when the market was down, Slim devoured cheap companies and established his control.
The creation of the Grupo Industrial Carso is linked to the brokerage firm Inbursa, founded in 1965, which over the years became a pillar of Grupo Financiero Inbursa under the direction of its largest shareholder, Carlos Slim Helú.
Grupo Carso is a piecemeal conglomerate that was formed by amassing like companies. For instance, Cigarros la Tabacalera Mexicana is dedicated to the manufacturing and sales of cigarettes and boasts the highest consumption of such products in the country. It includes brands like Marlboro, Benson & Hedges, Baronet, Commander, Dalton, Elegant, Delicate, Faros, Parliaments, Philips Morris, Virginia Slims, Cambridge, Merit, Saratoga, and Sanborns (which operates a chain of more than one hundred full-service shops that combine retail with restaurant and bar). In Marlboro, Slim started with eight percent of the shares. Years later, he sold his tobacco company.
Nacobre Industries, a manufacturer of copper products and alloys (largest in Latin America), covers much of the needs in construction, automotive, refrigeration, electricity, electronics and the power generation industries.
Other subsidiaries of Grupo Carso are Frisco Enterprises, which controls five other miners that extract mainly copper, silver, gold, lead and zinc.
In financial services, Grupo Financiero Inbursa includes Seguros de México Inbursa. In the hotel business, he has Real Turismo, acquired by Cantabria property, which is the group that operates Calinda hotels.
Researcher Carlos Morera Camacho, a specialist in the study of Grupo Carso at UNAM, refers to the consortium as the new financial capital in Mexico. It is closely related to Inbursa since it is the axis of the reunification of churches and former bankers Espinosa and Cosío Ariño, who were the main shareholders of Banamex. Slim has also become an intrinsic part of government support and his strategic partnership with other major capitals, national and abroad.
In other words, referring to Inbursa and Carso is talking about a complex set of new economic relations of production and power that existed prior to the nationalization of banks.
As a conglomerate, Grupo Carso has investments in sectors of the Mexican economy as follows: 24.9 percent in telecommunications (Telmex as a partner); 8.3 percent in mining (Frisco); forty-four percent in the manufacturing industry. The manufacturing industry is further broken down as follows: 7.1 percent in the production of cigars (Cigatam); 36.1 percent in the production of machinery and equipment (Nacobre, 14.4 percent, including 21.75 percent Aluminum Corp., 13.9 percent of Condumex and 7.9 percent of Industrial Llantera, which acquired one hundred percent of the shares of General Tire of Mexico, and 50.1 percent of the Euzkadi Rubber Company). Grupo Carso also invests 1.8 percent in the construction industry (Porcelanite and Cementos Moctezuma, associate company); 11.7 percent in trade sales at stores retail (Sanborns, Denny’s, Discolandia, Mixup); 5.5 percent Inmuebles Cantabria (including Club Racqueta de Cuernavaca); and 12.63 percent in financial services (Seguros de México S.A. de C.V.). With the exception of Cementos Moctezuma and Telmex, which is a major Carso partner, all others are part of the Grupo Carso.
Unlike Slim, who has demonstrated a keen insight to enhance his pruned business, the vast majority of employers turned to the support of the Trust for Hedge Funds (FICORCA) created under President Miguel de la Madrid.
Specialist Jorge Basave Kunhardt, author of Capital Financial Groups in Mexico, describes how entrepreneurs squeezed FICORCA by forming triangles with State support:
The FICORCA program was successful in terms of the objectives for which it was designed, but its economic and social impact can’t be evaluated solely on their stronghold. Resources for the federal government to absorb the changes of the exchange rate thereafter increased the private external debt from 1982 (because of a sharp devaluation in 1987, and the downslide of the peso) were obtained with the critical increase of its domestic debt.
The debt was repaid with high interest rates against the capital invested by individuals and private companies whose cash surpluses were freed from paying their external creditors.
With the expropriation of the banks, it seemed that Mexico had experienced a new division of financial duties between the public and private sector that altered what had persisted for over fifty years. It happened only partially.
There was a level of control ceded to the private sector, which represented a capital growth space that conformed to the new conditions of the crisis. In financials, their returns exceeded considerably against the performance of business production. It became the stock market operated by the brokerage firms. Until then it had been a market virtually underutilized and highly concentrated. But from that moment on, its level of concentration was simultaneously converted into the axis of investing the funds of the Treasury. The release of businesses because of FICORCA, along with the internal finances of the country, became the center hub of political-economic power, which had little concern over the disappearing of a private banking system.
It seems that by giving complete control of the stock market to brokerage firms, the state provided for two possibilities (or a combination of both).
The first was that the surplus of cash that was part of the FICORCA groups. This cash would be directed to productive investment, which also brought with it an increase in tax revenues in the short term.
The second is the investment of these surpluses in Treasury Certificates (Cetes) to cover urgent needs for government funding, among other things, due to the implementation of FICORCA and its own external debt.
The State had high expectations for productive investment hence the initial periods of amortization of FICORCA were planned for six to eight years. By 1986, one year before the crash, the price index and prices had risen 321 percent. That year, four brokerage firms (Acciones y Valores de México, Inverlat, Operadora de Bolsa and Inversora Bursátil, the latter owned by Slim) controlled sixty-five percent of the stock market.
According to Basave Kunhardt’s research about the extraordinary profits of these financial clans, he affirms that:
Most of the cash resources of the groups that were invested in the stock market went to money markets, mainly Cetes.
To a lesser extent, they invested in the stock market. In this sense, speculative investments directly by the companies were very small in relative terms. The real advantage of a stock market overvalued by the companies was exploited through the most direct and effective approach, represented by the rise of primary issues in a context of high prices.
The plethora of purely speculative investments should have been placed in the sale of unrealized shares (for capital gain) by entrepreneurs as individuals and by brokerage firms for their own profit. In this regard, it should be added that besides the higher market situation, the growth of inexistent adequate law and controls about the use of confidential information was taken advantage of.
With the support of FICORCA, business groups in Mexico ended up implementing a financial investment strategy that produced huge profits. They then decided to drastically abandon productive investment with the consequent delay in their levels of productivity.
Morera Camacho, author of Financial Capital in Mexico and the Limits and Contradictions of Globalization, established that “the creation of FICORCA boosted the stock market and with that, the financial speculation of the major groups, whose purpose was to reorganize the most indebted groups by converting public and private debt and through the implementation of adjustment programs to society as a whole.”
Thus, during the early years of FICORCA (1983-1987), Morera Camacho shows the beginning of the internal fortification of Grupo Carso through the acquisition of the brokerage firm Inbursa, the instrument that allowed the appropriation of five of its seven subsidiaries.
One of the most significant indicators in this period was the volume of profits earned by Inbursa. Its strategic position as a broker-dealer allowed it to take over the ownership and control of the issued shares of Frisco, Cigatam, Loreto, Euzkadi, Nacobre and Sanborns, and from there, access to the financial and industrial profits thereof. To understand the magnitude and the significance of this change, it is sufficient to note that in 1987, the value (financial and operational) was around MX$200 billion. Compared with earnings of Inbursa for the same years, presented 41.1 percent of the total profits of all brokerage firms. Among issued shares, Frisco deserves special mention, which had one-and-a-half times the amount of profits and nearly four times the operating profits of Inbursa.
The huge financial investments in this period of MX$2.305 million in contrast to productive investments in the same period, in the order of MX$609 million, paid off huge financial profits. Among the issuers that were expected to excel were Frisco and Cigatam, the first in 1987 when it had MX$290.3 million in financial profit, versus an operating income of MX$75.5 million; Cigatam, meanwhile, stood out in 1986, having gained a financial profit of MX$209.4 million against an operating income of MX$41.1 million. These huge profits allowed them to settle almost all their debts and offset falls in income from operations and considerably expand their scale of activity. The results yielded by the six issuers controlled by Inbursa during this period have been affirmed.
In order to illustrate from a holistic point of view the form assumed by the speculative element in the process of accumulation, it is necessary to explain that the financial gains were not incorporated in the calculation of the integral cost of financing. The surplus in stock, with the rest of the financial gains, price increases and currency exchange can be compared with operating profits.
The results observed between 1984 and 1987, which incorporated the effects of monetary and financial exchange, showed benefits for all the groups. In the relationship between Cigatam and Frisco, the results were positive in 1986 and 1987; for Cigatam, it varied from 2.40 to 5.09 times, and Frisco, in 1986 it ranged from 0.89 to 1.17 times and in 1987 from 2.07 to 3.85 times.
In the cases of Loreto and Peña Pobre, Euzkadi, Nacobre and Sanborns, the relationship was negative, because the financial obligations were greater than financial gain. However, in these cases the inclusion of currency exchange, monetary and speculative, allowed them to reduce the ratio in all years and in all cases, which amounted to Slim contributing until the group diminished its financial operations.
It is under these conditions that the brokerage firm Inbursa acquired Frisco, Citagam, Lypps, Euzkadi, Nacobre and Sanborns to benefit from the extraordinary financial gains obtained in these years, access to credit and the collapse of stock prices by the stock market crash in 1987. Major acquisitions were made possible from 1983 to 1989 because of the economic crises; several companies were acquired from 1974 to 1982. With the exception of Frisco and Sanborns, the groups faced a severe debt. The amount of the latter had grown from four to six times and this was particularly acute in cases like Loreto and Peña Pobre, Euzkadi and Nacobre, whose liabilities in 1950 rose 208 and 57 percent, respectively. As a result of falling sales from 1980, the years 1982 and 1983 suffered heavy losses.
A specialist in financial capital groups in Mexico, Dr. Morera Camacho has been researching the evolution of Grupo Carso for over a decade. He traces it from its formal creation in 1990 with the companies it acquired during the eighties and during the first three years of the nineties when Slim made equity investments of MX$427 million in new pesos (1992)30. That year, he bought 5.16 percent of the Class AA shares and five percent of all shares of Telmex, for which he appealed to the funding provided by the federal government (for an amount of MX$426 million, at an interest rate of 10.68 percent, and during a time period of six months).
With the award of the controlling company and the investment of five percent from its main partners, each one of his foreign technologist shareholders, France Cable et Radio and Southwestern Bell International Holding Co., Seguros de México (1.8 percent) and thirty-three Mexican investors to acquire 20.4 percent stake in Telmex (including Carso), represented by Class AA, shares would be awarded fifty-one percent of the votes of the shareholders. The amount for the transaction of sale of the controlling company, 20.4 percent of its capital stock, ascended to MX$734 million in Class AA shares. Of this percent, the shares purchased by domestic investors, equivalent to 10.4 percent of the company, were acquired through funding. Meanwhile, foreign investors bought in cash.
The acquisition of Teléfonos de México was the most important event in the history of the group for several reasons. First, it started with a form of productive investment in the telecommunications sector. This formed a new type of global investment partnership, which continued the new mode of foreign investment in Mexico corresponding to the globalization of the world economy. Second, in the history of the group, the socialization of capital and the centralization of control had never been so openly addressed by the capital management as large as its own and similar to the risk of socialization. Thirdly, in conjunction with the operation, internal oligopolistic market control was guaranteed until August 1996 by not giving any additional allowance for long-distance telephone service.
As for the Mexican financial capital as a whole, the new form of stock ownership and controls established in the country ushered in an unprecedented cycle that links all the forms of that capital (cash, production and sales). From this, the combination of the Carso and Inbursa groups handled the process and gave rise to the phenomena where they financed seventy percent of the companies they acquired in 1992. In July and August of that year, they purchased Aluminum and Condumex.
But Slim’s expansion of his group didn’t stop there; in January 1993 he acquired 99.9 percent of General Tire of Mexico, which together with Euzkadi, formed the new subsidiary of the group called Corporación Industrial Llantera. In September of 1993, he authorized the creation of a bank with national coverage, which was integrated into Grupo Financiero Inbursa.
While the origin of Slim’s business goes back to the seventies, it was not until the eighties that he became one of the most important financiers and business owners in Mexico. His big development has primarily been the result of the reorganization of groups since 1983.
The Grupo Financiero Inbursa was formally established in October 1992. However, its origins go back to the brokerage firm Inbursa, founded in 1965, and it didn’t achieve a notable presence until 1983. Slim acquired insurance and bonding after the nationalization of the banking, and created the bank in 1993. Stockholders’ equity of Grupo Financiero Inbursa was invested in Seguros Inbursa, Inversora Bursátil, Pensiones Inbursa, Banco Inbursa, La Guardiana (a general finance company), and Operadoras de Fondo.
How could this change, in less than three decades, have led him to own the most powerful financial capital group in Mexico? What role does the brokerage firm Inbursa and Grupo Financiero Inbursa play in this new power and what link exists between them? What characteristics does this phenomenon have? What was the situation of production and financial structure and modus operandi of the groups of which it consists today? What changes have occurred in connection with ownership and controlling shares in the old public and private groups of financial capital that ten years ago belonged to the old oligarchy and now make up the Grupo Carso and Grupo Financiero Inbursa in the figure of Carlos Slim?
In the development of Slim’s companies as a major business group in Mexico, there have been two fundamental periods: 1983 to1989 and 1990 to1992. The first has to do with its origin and internal expansion from the brokerage firm Inbursa, which is the instrument that allowed the appropriation of five of its seven subsidiaries. During the second period (1990 to 1992), the conglomerate Carso was directly linked to the privatization of Telmex and the trans-nationalization of the group. As a brokerage firm, Inbursa is linked with the insurance and bonding company, acquired after the nationalization and the formation of Grupo Financiero Inbursa. Subsequently, the lessor and the bank joined his group.
One aspect of this group structured around Inbursa brokerage firm that contrasts with the vast majority of other brokerage firms is the high concentration of the share capital in the hands of one person, Slim himself. From the beginning, Slim has retained the majority stake. In 1986, he owned 61.9 percent of the equity of that brokerage firm. With this capital structure, Slim has been in a position to exercise important decisions since 1983 and has been permitted to energize the patrimonial centralization of this group. In 1991, with the appearance of the brokerage firm as a self-owned company, the situation prevailed in the fundamentals.
Slim began acquiring bankrupt companies in 1976 when he bought Galas de México. This company, a manufacturer of paper products, was restructured after its acquisition to form several companies directly related to the field and materially linked through Grupo Galas de México. The group then became a subsidiary of the brokerage firm house Inversora Bursátil. To increase their own capital, they issued shares of their various companies. Later, the group merged with others and acquired Artes Gráficas Unidas.
Another one of Slim’s companies is Inver Corporación, S.A. of C.V., established to further the privatization of railways, petrochemicals and electricity.
During 1983 to 1986, Grupo Carso acquired the following companies: Fábrica de Papel Loreto y Peña Pobre, Hulera Euzkadi, Sanborns, Industria Nacobre and Compañía Minera Frisco.
Slim’s inventory soared in the eighties, strongly positioning him in the manufacturing, mining, trade and services sectors. The group’s great leap was made with the acquisition of Teléfonos de México. This was a highly sophisticated financial operation with the basis of strategic alliances with foreign and Mexican shareholders.
Slim’s power has overtaken the country’s borders. The tycoon is one of the few Mexicans who are part of the board of the multinational company Southwestern Bell, which is associated with Telmex. Slim was also invited to join the board of the multinational Philip Morris Corporation.
On the strength of immeasurable economic power, Slim heads up the twenty biggest proprietary families that own the major financial groups in Mexico and has decided to expand his empire to other latitudes. Among his purchases in recent years, he gained the Prodigy (MSN T1) in the US along with Bill Gates; Microsoft and SBC Communication (in partnership with Telmex); he bought one hundred percent of the chain store CompUSA; he acquired sixty percent of the shares of Conecel, a mobile phone company in Ecuador; in partnership with Bell Canada, he bought forty percent of the shares of the cellular company Techtel in Argentina, and Telmex was listed on the Labitex European market. Slim and Gates also raided Apple Computers; the Mexican businessman bought three percent of the shares and Gates made an investment of US$150 million.
Based on the projection of Internet users in Latin America and the likelihood that their activity would increase from twenty-two million in 2000 to seventy-seven million in 2005, through MSN T1, Gates and Slim acquired the totality of shares of Yupi. com (the Spanish portal), whose market counts one hundred million subscribers worldwide, for US$50 million dollars.
In New York, the Securities and Exchange Commission reported Slim’s investment of US$52.8 million in the purchase of nine percent of the shares of CDnow, an online music store that was facing financial problems.
He also bought 7.5 percent of Office Max, an American chain of materials and office supplies with operations in the US and Japan. He also acquired 12.2 million shares in the New York Stock Exchange, or 5.9 percent of the total value of Circuit City, the second largest chain that sells electronics in the US
To his stock list, he added sixteen percent of the shares acquired from the department store chain Saks, Inc., owner of the legendary store Saks Fifth Avenue.
He had the luxury of recovering Televisa in 1995 from a financial crisis that was threatening to sell part of its capital to foreign investors. Slim, through the bank Inbursa, acquired six percent of the shares with voting rights, shareholding belonging to the Diez Barroso and Miguel Alemán Velasco.
He also controlled forty-nine percent of the shares of Cablevision and sought to sell twenty-five percent of his part to recoup his investment. He began negotiations to acquire forty-nine percent of the network integration company Consorcio Red Uno, a company that supports Telmex in the technological modernization in terms of data communication through Telcel, the largest subsidiary of América Móvil. Telcel operates in eighteen countries and has a list of about two hundred million subscribers, of which less than a third is in Mexico.
América Móvil is also involved with these companies: Dominican Telephone Company, Puerto Rico Telephone Company, PRT Long Distance; Communications Services in Honduras; Tractofone Wireless Inc. (Delaware); Americel; Claro, Telecomunicaciones de Guatemala, AMK Argentina, AMK Paraguay; AM Wireles Uruguay, América Móvil Peru and Panama.
Through Grupo Sanborns, Slim acquired eighty-five percent of the shares of the subsidiary México de Sears Roebuck and Company for US$103 million in cash.
In its report from 2000, Latin Trade magazine ranked Telecom Carso Global below the Brazilian oil company Petrobras. Telecom Carso Grupo, major shareholder of Telmex, is the second largest company with sales in Latin America, registering US$13 billion that year.
Many entrepreneurs in the financial sector, which analysts call representatives of Smart Money (those who know where the money is), were destined to benefit from speculation. Three months after Salinas took his mandate, he sent them a clear signal through the Secretary of the Treasury at the time, Guillermo Ortíz Martínez. The secretary reassured the “stock market boys” that, “from today on, we live in another stock market: there is no witch hunt, nor will there ever be. So here is the issue of alleged violations of the Securities Market Act. In this sense, the sheet has been folded.”
Years after the Salinas dynasty, beneficiaries finished under the pillory Ernesto Zedillo. The “model” banker, Carlos Cabal Peniche, majority shareholder of Union Bank, was extradited and faced criminal charges for crimes of civil and business fraud for more than US$600 million. The neo-banker Ángel Isidoro Rodríguez “the Divine,” former owner of Banpaís, faced charges of tax fraud and patrimonial suffering. When the transportation entrepreneur Roberto Alcántara Rojas failed to manage Bancrecer, the government had to inject about US$11 billion into the bank to rescue him. Banker by descent, Agustín Legorreta Chauvet led Multibanco Comermex to bankruptcy, which became Inverlat and purchased Scotiabank. Jorge Lankenau of Banca Confía and brokerage firm Abaco went from the top to ruins and was jailed for fraud. Adrián Sada González, who presided over Operadora de Bolsa Serfín bank, faced charges of money laundering. Cleaning up his bank cost the Institute for the Protection of Savings Bank US$12 billion. Roberto González Barrera of Banorte also received favors of millions of dollars from Fobaproa. Roberto Hernández, owner of Banamex, was the most favored because the Presidents Salinas, Zedillo and Fox protected him.
The abuse in the handling of privileged information seemed to be second nature for these entrepreneurs, but the CompUSA case brought out a scandal that sparked international outcry.
The influential Wall Street Journal revealed that during the first week of May 2001, the US Securities and Exchange Commission (SEC) filed charges involving shares of companies listed on the New York Stock Exchange.
According to the investigation, among the implicated were financial lawyer Alejandro Duclaud González, member of the firm, and Frank, Galicia, Duclaud and Robles, Slim’s business consultants.
The defendants in the case allegedly began their negotiations on January 6, 2000, with the purchase of 325,000 shares of CompUSA for US$5.25 each. After, they acquired 546,000 additional shares in two sessions, January 19 and 20, days before the Sanborns Group and CompUSA had grossed nearly US$4 million.
The Duclauds used four offshore companies in the operations to appropriate the money. Those companies involved were Anushka Trust, Caribbean Legal Trust, Antares Holdings Investment Ltd. and Banrise Ltd. BVI.
According to the Wall Street Journal, “Allegations of insider trading have long abounded in Mexico, where family groups tend to own ninety percent of the shares of a company listed on the market, but are rarely punished.”
The scandal over insider trading also caught the conspicuous Salinista character red-handed along with entrepreneur Claudio X. González, a member of the board of administration for Grupo Carso and ex-advisor on foreign investment for Carlos Salinas de Gortari and Ernesto Zedillo.
The influential New York newspaper said González bought stocks at 0.1 percent in CompUSA, months before Sanborns made a public offer for shares of US computer retailer. The entrepreneur then sold his shares of CompUSA after the company was sold to Sanborns, when the stock had doubled in value.31
Carlos Slim with former US President Bill Clinton.