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Itaú expands Andean reach with CorpBanca deal

Jan 29, 2014

In the largest-ever bank merger in Chile, Itaú-Unibanco grows its market share and sets a foothold in Colombia

Chile's CorpGroup agreed to merge its banking operations with Itaú Unibanco late Tuesday, in a deal that expands the Brazilian brand in Chile and Colombia and gives it a platform for further growth.

The Brazilian lender will take a 33.58% stake in the new Chilean bank, to be branded Itaú, and become controlling shareholder. CorpBanca's existing shareholders will hold the remainder. Itaú will inject $652m of equity to its Chilean subsidiary ahead of the merger to capitalize the new institution and prepare it for future growth.

The agreement makes Itaú the fourth largest Chilean retail bank - until now it ranked seventh - growing its market share there from 4% to 12%. It will also gain a foothold in the fast-growing Colombian market, through CorpBanca's operations there.

The deal is thought to address a desire at CorpBanca expand in Chile through acquisition. As well as giving Itaú a more solid position in Chile and an entry into Colombia, it offers a platform to move into other markets like Peru and Central America, said Mark Rosen, head of investment banking for Latin America at Bank of America Merrill Lynch, which with Goldman Sachs was advisor to CorpBanca. Itaú BBA advised Itaú.

"This is the most significant strategic alliance for Itaú that they've made outside Brazil so far," he said. "Nothing they've done in the past is of the scale of this transaction. It's a transformational deal for the international business of Itaú."

The deal is the largest merger of financial institutions in Chile, and the largest in Latin America since 2008.

The transaction is "solidly cash accretive to earnings per share", said Rosen: "It significantly improves the capital base of CorpBanca. And there are significant synergies."

The deal comes after extensive talks which began in mid-2013. Spanish lender BBVA was understood to also be discussing an acquisition of CorpBanca.

CorpBanca is 45.26% owned by CorpGroup. Moody's downgraded both entities in December, citing contagion concerns from related company SMU. It rates CorpBanca Baa3. Standard & Poor's rates the bank BBB, downgrading it in August after CorpBanca bought Helm Bank in Colombia. LF

See LatinFinance's Daily Brief on Thursday for further analysis of the transaction.



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