Mexican Market Whiz Tries Banking : Investment: Roberto Hernandez, who for 20 years has anticipated rises and falls in his nation’s stock market, has captured one of the biggest prizes of nationalization--Banco Nacional de Mexico.

MEXICO CITY —  The new man in charge at Mexico’s largest bank made his money by following the oldest maxim of stock market trading: Buy low, sell high.

Over the past 20 years, Roberto Hernandez has anticipated the roller coaster rises and plunges of Mexico’s fledgling stock market. In the process, he has built the fortune--and reputation--that allowed him to put together the $3.25-billion winning bid last week for the government’s controlling interest in Banco Nacional de Mexico, the nation’s largest nationalized bank with $27 billion in assets.

Hernandez’s trumping of an industrial group’s lower bid to win control of the bank, known as Banamex, is the latest sign that the Mexican stock market--until recently a quaint, esoteric club--has become a central part of Mexico’s financial system.

The financier’s prominent role--and his diverse, 800-member investor group--also indicate how much that system has changed since a decade ago, when banking was an oligarchy of old-money families, many tied to the sorts of industrial groups that bid against Hernandez last week.

Today, evidence of the market’s growing importance is abundant.

Five of the seven banks that the government has sold to date have been purchased by brokerages. The stock market, meanwhile, has become a major conduit for foreign investment in Mexico. It is also an important source of new capital for companies that must overhaul themselves to meet international competition for the first time in 40 years, as Mexico drops its import tariffs and negotiates a free-trade agreement with the United States and Canada.

With the growth in the stock market’s importance, people who began their careers in the market now promote its expansion from key government and industrial posts--among them Oscar Espinoza, director of the nation’s powerful development bank.

But no one represents the rising importance of the stock market better than the 49-year-old Hernandez.

A graduate of Iberoamerican University, a Mexican Ivy League school, Hernandez is nevertheless considered an outsider among the country’s old-guard financial elite--families such as the Legorretas, who controlled Banamex before the banks were nationalized in 1982.

His style is markedly different from that of traditional business leaders, who in Mexico make public appearances rarely and then only in the most formal venues. Hernandez, by contrast, answers telephone calls, chats comfortably with reporters after press conferences and answers questions directly, usually in one or two short sentences.

“He is completely unaffected, and I do not think that will change,” said a Mexican journalist who has followed Hernandez’s career through two terms as president of the Mexican Stock Exchange.

Hernandez is an unabashed capitalist in a country where making money is still considered an indelicate matter that should be cloaked in more idealistic terms. Mexican businesses, for example, habitually announce investments or expansion plans as if they were acts of patriotism.

The dark-haired, blue-eyed Hernandez scoffs at such notions. “We don’t see growth as an obligation,” he said. “We see it as an opportunity.”

That pragmatic approach to business reflects Hernandez’s background in the stock exchange.

After a brief stint in a mid-size Mexican bank, Hernandez began working in the market in 1967, when trading was done solely by individual brokers. He founded one of the country’s first brokerage houses, Acciones y Valores, in 1971, putting together a team committed to stock trading at a time when most of the market was focused on debt instruments.

Alfredo Harp, an eloquent member of a well-known entrepreneurial family, became his second in command. Jacques Levy, a Belgian economist in charge of the brokerage’s international department, began promoting the Mexican market to foreign investors.

“They are extremely well-organized and run their operations with a few top-quality people,” said the director of a competing brokerage.

And Hernandez’s group made money--both for themselves and for their clients.

Accival, as the brokerage is known, bought stock at the beginning of Mexico’s economic crisis in 1982. Prices were plunging as investors, led by the banking oligarchy, pulled money out of the country.

In retaliation for the capital flight, then-President Jose Lopez Portillo nationalized the banks, compensating bankers with long-term bonds. Many of the bankers used the bonds and their knowledge of finance as a foothold in the stock market.

The government, meanwhile, created a credit crunch by raising the state-run banks’ reserve requirements in order to finance the federal budget deficit. That, in turn, reemphasized the market’s role in providing debt financing.

By spring, 1987, the Mexican Stock Exchange was the world’s fastest-rising market. But then came the worldwide October stock crash.

Crumbling prices exposed graft and corruption in Mexican brokerages. Only about 17 complaints--totaling less than $1 million--were filed against Accival, which had sold when prices were still high and remained relatively liquid at the time of the crash.

As the investigation proceeded and investors fled the market, Accival started buying again. The brokerage made heavy investments in voteless shares in the nationalized banks and stock in the national phone company--shares that soared when the government moved to privatize the industries in 1989 and 1990.

“They were either visionary,” one market observer said of Accival, “or very well informed.” In any event, practices that might qualify as insider trading in the United States are simply considered sharp dealing in the free-wheeling Mexican stock market.

Indeed, market experts express admiration for Accival’s ability to pick stocks--such as men’s clothier Puritan, retailer Robert’s and Scott Paper subsidiary Industrial de San Cristobal--just as their prices take off.

Accival’s record has hardly gone unnoticed. The brokerage now manages one-third of the money in Mexican mutual funds, besides advising funds on Mexican stocks that trade on the New York, London and Luxembourg markets. And it handles a large portion of foreign investors’ purchases in the Mexican market.

But market experts also point out that Hernandez has made costly mistakes.

Two years ago, he took over and restructured a retail chain, Paris Londres, in a flop that may have been a factor in his being passed over when the government sold its stake in Telefonos de Mexico, the jewel of Mexico’s state-owned industries.

“Government officials believed that he was a trader, not a builder,” said a source close to the Treasury Ministry, which is in charge of the government’s ambitious divestiture program.

Hernandez was determined not to lose Banamex, the second great prize of the privatization.

Besides looking for investors among Accival’s clients, Hernandez and Harp decided to seek support from the bank’s clients, who traditionally had been important shareholders. They also brought in investors representing diverse business interests: publisher and automobile dealer Romulo O’Farrill Jr.; cement maker Lorenzo Zambrano from the industrial city of Monterrey, and Carlos Hank Rohn, chairman of the industrial conglomerate Grupo Hermes and son of the agriculture minister.

After that, the strategy was pure audacity.

Recognizing that buying Banamex would require a huge investment, the government offered to sell the controlling group just 31%. Another 20% would be offered to the bank’s regional boards and key executives, with the government hanging on to its remaining holdings, about 19.7%. (The remaining 29% of ownership has traded as voteless shares and was to be converted to voting units.)

Accival, however, not only offered a per-share price 12% higher than the competing bidders, but said it would buy all the government’s stock at $6.40 a share--more than 2 1/2 times book value and 20% above Friday’s closing price of $5.30. Accival also offered to pay that price for any shares not taken by the regional directors, who had right of first refusal on 20% of Banamex stock.

Hernandez’s offer simply bowled over the sellers.

When the sale was announced last week, Hernandez outlined an equally bold view of Banamex’s future. The Banamex-Accival financial group is already a leader in Latin America, he said--and Hernandez plans for it to become a leader worldwide.

His view, as usual, contrasted sharply with the comments of other bankers and stock brokers, who have testified in Mexican Senate hearings that the financial sector needs a gradual, protected transition if the country enters a free-trade agreement with the United States.

“The competition is already here,” Hernandez said, referring to international bank financing of trade and other commercial business. “The next step is corner-to-corner competition for retail business. We are ready for that. We are analyzing what has happened in other countries. We will do well.”

What the Merger Will Create

Banamex and Accival combined will create a financial powerhouse that will undisputedly dominate Mexico’s financial sector.

Amount Market (billions) share Ranking Funds traded $2.3 15.4% 1 Mutual funds 0.7 33.2% 1 Bank assets 27.0 23.3% 1

Source: Accival

Bio: Roberto Hernandez Head of investor group that last week bought controlling interest in Mexico’s largest bank. Age: 49.

Born: Tuxpan, Veracruz, Mexico.

Education: Earned bachelor’s degree in business administration from Iberoamerican University in 1964.

Family: Has three children.

Resume: Joined Mexican Stock Exchange in 1967. Founded Acciones y Valores brokerage in 1971. President of the stock exchange from 1974-79.

Business philosophy: Banco Nacional de Mexico is already an international bank, but it must strengthen its worldwide presence to remain competitive as the country opens up to foreign trade and investment.

Quote: “We do not see growth as an obligation. We see it as an opportunity.”