Banco Internacional (BITAL) was re-privatized by the Mexican government in 1992. At the end of 1993, its new management began implementing a strategy, which consisted of a new image, aggressive growth and providing better banking services in a fully automated and efficient way. The bank was focusing in three specific markets: retail banking, small-sized and medium-sized companies. The bank’s goals were to reduce expenses and start a healthy growth of the loan portfolio.

The devaluation of the Mexican peso at the end of 1994, and the economic recession that accompanied it caused increases in interest rates, foreign exchange losses, liquidity shortfalls, capital withdrawals and an overall deterioration of the bank loan portfolio. For Bital, the crisis highlighted many uncertainties about future value, growth and the overall outcome of its strategy. The essential question facing Bital’s shareholders and management is what was the impact of the devaluation on the bank’s value.

This case is written for an introductory Emerging Market Corporate Finance course. The intended audiences are first-year MBA students, undergraduates or executives. The case has several main objectives.

1. It introduces the notion of risk, and demonstrates the prevalence and profound influence of the risk factors in emerging markets. The Mexican Peso Crisis in 1994 is a classic example of how susceptible the emerging market is to the change in political atmosphere and investor confidence. The overview of Mexican Crisis and detailed discussion of BITAL’s experience will help the students appreciate the volatile nature of emerging market.
2. It illustrates the impact of economic crisis on the value of firms. Specifically, it discusses how the performance of the loan portfolios and the change in the macro environment affected BITAL’s value in 1995.
3. It will lead to a discussion of effective use of crisis control mechanism and how a firm can learn good lessons from bad experience. The crisis actually prompted Mexico and BITAL to adopt stringent policy and sound business practice. Handled appropriately, crisis can be turned into "creative destruction."
4. It also demonstrates the technical difficulty of evaluating financial institutions in emerging markets. Students will learn how to make sensible assumptions and sound judgements in the valuation exercise when the desired information is not available.

Although the case is full of country and firm specific information, the instructor and students should not be overwhelmed by the details. The case is written for the purpose of helping the students gain general understanding of emerging markets. Enough time should be spent on discussing questions of this kind: how could this case help us understand the crises in other emerging markets? As an investor in the developed world, how would you analyze a firm in an emerging market?