(Reuters) - For Citigroup Inc (>> Citigroup Inc) executives, being asked why they won't sell their Mexican bank subsidiary Banamex is as annoying as the yapping of a Chihuahua. But the question keeps coming up.

In some of the first signs of how some investors in Corporate America are bracing for a President Donald Trump, several large investors have expressed concern to Citi management in recent private meetings about the impact a victory for the Republican might have on the Mexican unit, according to people who attended or were briefed on the meetings.

Even if Trump did not follow through on his pledge to build a massive border wall, some investors voiced concern that his presidency would undermine cross-border trade and travel, and in turn hurt the Mexican economy and Banamex profits, the sources added, asking not to be identified because they are not authorised to speak with the media.

Trump is not the main reason investors are asking about divesting Banamex, nor is the idea a new one. But his talk of building a wall has renewed questions at a time when Citigroup stock continues to trade at a 25 percent discount to its tangible net worth. The stock is so low because investors doubt Citigroup's ability to boost its returns on equity any time soon.

Trump, who has reduced the lead held by Democrat Hillary Clinton in recent polls ahead of the Nov. 8 vote, has vowed to make Mexico fund the construction of a giant border wall to stem the flow of illegal immigrants into the U.S. He has also pledged to change North American trade agreements and impose higher tariffs on Mexican goods to bring jobs back.

At an investor conference on Wednesday, Citigroup Chief Financial Officer John Gerspach was asked why he was so positive on Banamex. The question was similar to one asked in July by CLSA analyst Mike Mayo, who has been urging Citigroup to sell Banamex for years.

Mayo told Reuters his rationale is "to unleash trapped value." He wants Citigroup to use Banamex sale proceeds to buy back its cheap stock, which would make the remaining shares more valuable, and attract more interest from investors.

"It would make crystal clear the absurdity of Citigroup stock trading at three-fourths of tangible book," Mayo said. He said Citi could see a gain of $5 billion (3.83 billion pounds) to $10 billion (7.65 billion pounds) through a sale.

Regardless of Trump, Citi CEO Mike Corbat has more reasons now than even two years ago to keep Banamex, people familiar with his thinking say.

For one, Banamex earns about 15 percent return on shareholder equity - significantly better than Corbat's goal of at least 10 percent.

In addition, Banamex contributes about 15 percent of Citigroup's global consumer revenue, which makes Mexico second only to the United States in importance. It has the most branches, with about 1,500 compared with 700 locations in the U.S., where much of Citigroup consumer business is in cards.

Corbat has overseen the disposal of half of Citigroup's country-based consumer franchises, bringing the total down to 19. Banamex was deemed the only one in Latin America strong enough to keep.

Banamex is the second-biggest bank in Mexico, which Corbat expects will grow with the U.S. economy. He expects trade with Mexico to continue to be robust regardless of whether Trump wins.

IMPROVEMENTS SEEN

Citigroup is starting to see improvements at Banamex following management changes in 2014 and Corbat's commitment then to invest $1.5 billion in its operations. Corbat announced the investment on a podium with the president of Mexico.

The management changes followed discovery of more than $500 million of fraudulent loans that Banamex made to a Mexican oilfield services company, as well as U.S. government investigations of money laundering at Banamex offices in the U.S. Citigroup paid $140 million to settle federal regulators' probes into the money laundering matter, but a criminal investigation has yet to be publicly resolved.

Corbat has since won approval from U.S. regulators for two capital plans and an endorsement of its so-called "living will," showing how the company could be wound down without taking other banks with it. The approvals imply that regulators have found Citigroup's risk management of Banamex acceptable.

"It's accretive to our shareholders, the returns are solid," Corbat said in July. "So right now I really don't see it's an area where we would contemplate selling."

Corbat doubts that Citigroup could quickly gather proceeds from selling Banamex and then win permission from the U.S. Federal Reserve to use the money to buy back stock, said a person familiar with his thinking.

Even without a Banamex sale, Citigroup has been building up excess capital that it expects the Fed will allow it to use for additional buybacks.

In a March report, KBW analyst Brian Kleinhanzl argued that Citi should divest Banamex's consumer and small business franchise. It does not fit into Citi's consumer strategy in other emerging markets where it focuses on customers in high-growth metropolitan areas, he said.

An outright sale, Kleinhanzl wrote, could be difficult because the pool of potential buyers is small. But Citigroup could sell that portion of Banamex to investors through an IPO, commanding an $11.8 billion price tag, resulting in a $5.9 billion pre-tax gain for Citi, he estimated.

The Fed, in Mayo's view, set a precedent for Corbat to distribute Banamex proceeds, when it approved buybacks by KeyCorp (>> KeyCorp) following the sale of an asset management business.

(Reporting by Olivia Oran and David Henry in New York. Additional reporting by Emily Flitter.; Editing by Lauren Tara LaCapra and Stuart Grudgings)

By Olivia Oran and David Henry

Stocks treated in this article : Citigroup Inc, KeyCorp