Fitch Assesses Proposed Merger of Banco Itau Chile with Corpbanca Chile

Today Fitch has completed its review of the National Scale Ratings of the subsidiaries in Colombia and Chile of Itau Unibanco Holding S.A. (IUH). The review follows the Jan. 29 announcement of a proposed merger between IUH's Chilean subsidiary, Banco Itau Chile (BIC) with Corpbanca Chile.

THE TRANSACTION

The proposed transaction entails the swapping of IUH's BIC shares for shares in a new entity that will be known as Banco Itau Corpbanca. Prior to the swap, Itau Unibanco S.A. (Itau, a subsidiary of IUH and one of the largest commercial banks in Brazil) will make a capital infusion of USD652 million into BIC. Following the merger, Itau will have a controlling 33.58% ownership on the resulting entity, while Corpgroup will own a 32.92% share, and the remaining 33.5% shares will remain in the form of free-float. It is expected that the transaction will be approved by the shareholders and various regulators year-end 2014. Corpbanca assets in Colombia (Corpbanca Colombia and the expected-to-be merged Helm Bank S.A. and its subsidiary Helm Bank (Panama) S.A.) will be fully consolidated into Banco Itau Corpbanca.

The new Itau Corpbanca is expected to have an initial market share of approximately 12.4%, making it the fourth largest private bank in Chile in terms of loans. This merger is also strategic as it will also permit the increase of Itau group's presence in Colombia. As such, the sum of the assets of Itau's subsidiary (Itau BBA Colombia S.A. Corporacion Financiera -- Itau Colombia) and the Corpbanca subsidiary in Colombia, which is in turn in the process of merging with Helm Bank, will result in the formation of the fifth largest bank in terms of loans, with a market share of approximately 6.7%.

KEY RATING DRIVERS

The proposed transaction will have several positive effects on the ratings of IUH's subsidiaries involved in the transaction and also over Helm Bank S.A, an entity in the process of merging with the current Corpbanca operations in Colombia. In the case of IUH, the proposed transaction is neutral in regard to its ratings and overall credit profile but positive towards its geographic diversification as a regional bank in Latin America. The new Itau Corpbanca entity may represent around 9.70% of IUH's consolidated assets as of Sept. 30, 2013, while its income contribution will remain modest compared to the overall business. No goodwill or other intangibles will be created due to the transaction.

National Scale Ratings for BIC (currently a 'core subsidiary' of IUH in Chile) will remain driven by the expected support from its parent. The new entity in Chile will enjoy a larger business scale, diversification and expanded revenue stream, although its capital ratios will range slightly below other banks of similar size in Chile. After the transaction is completed, Itau Corpbanca will remain as a 'core' subsidiary for IUH.

Similarly, Itau Colombia's National Ratings remain driven by the expected support from its parent, as this subsidiary is considered to be 'strategically important' by Fitch according to its current criteria. Even though the Colombian operations will be sizable in terms of assets and result in significant revenue contribution to the newly-formed Itau Corpbanca, the overall contribution to IUH of this operation will remain small.

In the case of Helm Bank, its current National Scale Ratings are driven by its own financial strength explained by its adequate market position, good asset quality ratios, moderate profitability and the benefits of a stable funding and capital base. National Scale ratings for Helm Bank's fully-owned subsidiary in Panama (Helm Bank (Panama) S.A) are fully derived from the expected support of its parent in Colombia, which considers it a 'core' subsidiary. Fitch has placed the ratings of these two entities on Rating Watch Positive, with resolution of the Rating Watch contingent upon completion of the transaction.

RATING SENSITIVITIES

In the case of BIC and Itau Colombia, their National Scale Ratings may be affected by changes on the creditworthiness of IUH and/or changes on their strategic importance for the parent, although the latter is a not a likely scenario. The current Rating Outlook is Stable.

In the case of Helm Bank S.A and Helm Bank(Panama) S.A. the resolution of the Rating Watch Positive will be contingent to the completion of the transaction, as they will become part of the newly formed entity in Colombia.

As is the case in any other merger, there are several risks involved with the transaction (operational, financial and regulatory, among others) which may result in changes on the proposed transaction. It is Fitch's view that IUH's long-dated experience integrating new operations in its home country and abroad may serve well to complete the proposed transaction without undermining its financial strength and/or the financial strength of the acquired entities.

Fitch currently rates Itau Unibanco Holding S.A. as follows:

--Long-Term Foreign Currency Issuer Default Rating (IDR) 'BBB+'; Outlook Stable;

--Short-Term Foreign Currency IDR 'F2';

--Long-Term Local Currency IDR 'A-'; Outlook Stable;

--Short-Term Local Currency IDR 'F1';

--Viability Rating 'a-';

--Support Rating '2';

--Support Rating Floor 'BBB-';

--National Long-Term Rating 'AAA(bra'); Outlook Stable;

--National Short-Term Rating 'F1+(bra)';

--Subordinated debt 'BBB';

--Market-linked securities 'BBB+emr'.

Fitch has taken the following rating actions:

Banco Itau Chile

--National Long-Term Rating affirmed at 'AA(cl)'; Outlook Stable;

--National Short-Term Rating affirmed at 'N1+(cl)';

--National Senior Unsecured affirmed at 'AA(cl)';

--National Subordinated Debt affirmed at 'A+(cl)'.

Itau BBA Colombia S.A. Corporacion Financiera

--National Long-Term Rating affirmed at 'AAA(col)'; Outlook Stable;

--National Short-Term Rating affirmed at 'F1+(col)'.

Helm Bank S.A., Colombia

--National Long-Term Rating 'AA+(col)' placed on Rating Watch Positive;

--National Short-Term Rating affirmed at 'F1+(col)';

--Multiple Senior Unsecured Bond issuances by Helm Leasing SA within a Global Program up to COP1.5 billion 'AA+(col)' placed on Rating Watch Positive;

--Multiple Senior Unsecured Bond issuances by Helm Bank for COP1.5 billion 'AA+(col)' placed on Rating Watch Positive;

--Global Senior Debt Bond Program of Helm Bank 'AA+(col)' placed on Rating Watch Positive;

--Global Subordinated Bond Program of Helm Bank 'AA(col)' placed on Rating Watch Positive.

Helm Bank (Panama) S.A.

--National Long-Term Rating 'AA+(col)' placed on Rating Watch Positive;

--National Short-Term Rating affirmed at 'F1+(col)'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'National Scale Ratings Criteria' (Oct. 30, 2013);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

National Scale Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=818870

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Fitch Ratings
Primary Analyst (IUH)
Robert Stoll
Director
[phone]
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst (IUH)
Maria Rita Goncalves
Senior Director
[phone]
or
Primary Analyst (Banco Itau Chile)
Abraham Martinez
Director
[phone]
Santiago
or
Secondary Analyst (Banco Itau Chile)
Eduardo Santibanez
Senior Director
[phone]
Santiago
or
Primary Analyst (Itau BBA Colombia S.A.)
Sergio Pena
Associate Director
[phone]
Bogota
or
Secondary Analyst (Itau BBA Colombia S.A.)
Andres Marquez
Director
[phone]
Bogota
or
Primary Analyst (Helm Bank S.A. and Helm Bank (Panama))
Rolando Martinez
Director
[phone]
San Salvador
or
Secondary Analyst (Helm Bank S.A. and Helm Bank (Panama)
Andres Marquez
Director
[phone]
or
Committee Chairperson
Franklin Santarelli
Managing Director
[phone]
or
Media Relations:
Elizabeth Fogerty, [phone] (New York)
[e-mail]