By SAM DILLON

          MEXICO CITY -- Mexico's largest financial group, Banacci, said
          on Wednesday that it had begun merger talks with Bancomer,
          the country's second largest financial group, raising questions about the
          anticipated takeover of Bancomer by a Spanish financial group.

          The financial group that would result if the two Mexican groups were to
          merge would be Latin America's largest, with more than 11 million
          customers and nearly $60 billion in assets.

          "This is not an attempt at a hostile takeover," Manuel Medina Mora,
          Banacci's chief executive officer, said at a news conference. "It's an
          unsolicited offer, certainly, but by no means an unfriendly one."

          At Bancomer, a spokesman acknowledged that Bancomer executives
          had received Banacci's proposal on Wednesday and were studying it.
          "Our board will decide now what's most beneficial to shareholders," the
          spokesman said.

          The proposal stunned Mexico's banking world, coming amid ongoing
          merger talks between Bancomer and the Spanish financial group, Banco
          Bilbao Vizcaya Argentaria SA, known as BBVA. When the Spanish
          group proposed to merge with Bancomer in March, many analysts
          presumed that the deal would succeed.

          Analysts noted that a year ago, Bancomer was ailing, with a portfolio of
          nonperforming loans slowing operations there, as at most of the nation's
          37 banks.

          "For Bancomer, this is an amazing turnaround," said Ursula Wilhelm, a
          director at Standard & Poors in Mexico City. "It's dramatic to see how
          quickly the outlook is changing for the entire banking system."

          One of the motives behind the Banacci proposal was to block the
          Spanish group from making further inroads in Mexico's financial industry,
          said a Banacci executive who explained the arrangement.

          "This is the best way to defend the domestic market," the executive said.
          "We're just taking the offense instead of the defense."

          In March, Grupo Financiero Banamex Accival, known as Banacci, had
          $29 billion in assets, while Grupo Financiero Bancomer, had $28 billion
          in assets. Banamex, the bank that is Banacci's main business, is Mexico's
          largest.

          To implement the merger, the two financial groups would carry out a
          stock swap, a transaction that would yield an ownership split of a new,
          still unnamed, financial company of 65 percent for Banacci shareholders
          and 35 percent for Bancomer shareholders, according to the Banamex
          proposal. The proposal was explained in a four-page statement issued by
          Banacci today.

          The giant company resulting from the merger would raise $2.4 billion in
          new capital, most of which would be used to put Bancomer on a sound
          financial footing by covering the bank's portfolio of nonpaying debts, the
          Banacci statement said.

          The $2.4 billion in new capital would be raised from several sources, the
          statement said. About $1 billion would come from sales of redundant
          assets at the two banks and $300 million from Aegon N.V., a Dutch
          insurance company that is Banacci's partner in a pension management
          company. The new company would raise $500 million by issuing new
          shares of common stock, and $600 million by issuing up to $600 million
          in nonconvertible capital securities, the statement said.

          Both the BBVA merger proposal and the Banacci proposal are subject
          to the approval, first of the shareholders at the companies involved and
          then of Mexican banking authorities. Spanish regulatory officials must
          also approve the BBVA proposal.

          A Banacci-Bancomer merger would involve a delicate marriage of two
          banking companies that have long been rivals. The president of Banacci,
          Roberto Hernandez, is a hard-driving financier who bought Banamex
          when it was privatized during the presidency of Carlos Salinas de
          Gortari. He is a close friend of President Ernesto Zedillo. Hernandez's
          No. 2 is Alfredo Harp Helu, another Mexican financial titan.

          The largest shareholders in the Bancomer group are members of the
          Monterrey-based Garza Laguera family. Bancomer's board president
          since October has been Ricardo Guajardo Touche, an engineer from
          Monterrey.

          The merger proposed by Banacci would unseat dozens of executives
          appointed by the Garza Laguera family. Banacci proposed a 15-member
          board for the new financial giant, with nine members coming from
          Banacci management and six members from Bancomer.