Fitch Affirms Chile's BCI's IDR at 'A-' on Announced Acquisition of City
BUENOS AIRES, Argentina & SANTIAGO, Chile -- June 5, 2013
Fitch Ratings has affirmed Chile's Banco de Credito e Inversiones's (BCI)
viability rating (VR) and foreign and local currency long-term Issuer Default
Ratings (IDR) at 'a-' and 'A-' with a Stable Outlook, respectively. The rating
actions follow the announcement that BCI has agreed to acquire 100% of City
National Bank of Florida (CNB) from Spain's Caja Madrid Cibeles, S.A.U., a
subsidiary of Bankia, S.A. A complete list of rating actions is provided at
the end of this release.
The acquisition is still pending regulatory approval in Chile, the United
States and Spain and is expected to take place during the last quarter of 2013
or the first one of 2014.
KEY RATING DRIVERS
The rating affirmation is based on Fitch's opinion that the acquisition of CNB
is strategically positive for BCI and that it will not deteriorate the bank's
overall financial strength. CNB is relatively small compared to BCI (at March
31, 2013 it represented 12%, 9.3% and 15% of BCI's assets, loans and deposits
respectively). However, the transaction allows BCI to diversify its operations
from its home market and expand the services offered to its clientele in
Florida. CNB's capital position is strong, while its retail funding base has
shown good levels of stability and diversification despite its size. Even
though current asset quality ratios are better than other banks in the area
and after a significant clean up since 2008, CNB's loan portfolio shows
significant concentrations in real estate exposures (residential and
commercial real estate) as do other banks in Florida. This is a challenge
considering recent trends and volatility on such markets. CNB's profitability
ranks below BCI, which is one of the challenges that BCI will deal with in the
short and medium term in order to enhance the ability to contribute to its
Even when CNB may bring new business to BCI outside Chile, the range of
services currently offered by CNB are narrower than those ran by BCI in Chile.
This is an opportunity for BCI to expand its service offer in Florida and
complement its existing operations through its Miami Branch established 14
years ago. A healthy expansion of BCI's balance sheet in the area through CNB
will be essential to recover the Florida's bank profitability, which will be
challenging during times when economic activity in the area remain sluggish
and new product expansion will require a revamped commercial effort. Fitch
believes the execution risk present in this transaction (as in any other
acquisition) is manageable by BCI, considering its expertise and conservative
business model and also benefited by the strong capital base of CNB and its
BCI has announced that it will pay a total of USD 882.8 million for CNB and
that it will finance the transaction with a capital increase of approximately
USD 400 million and the issuance of subordinated and senior debt. With this
capital increase and given that CNB has a solid capitalization ((Tier 1 ratio
of 18.5% at March 31, 2013), Fitch expects BCI to maintain adequate capital
adequacy ratios, with a post-acquisition Fitch Core Capital (FCC) ratio of
around 8.6% and tangible capital / total assets ratio of 8.1%, deducting
estimated goodwill and deferred tax assets of around USD400 million. Fitch
also expects that the bank will be able to recover its capital ratios to
pre-acquisition levels during the 12 to 18 months after the transaction close.
BCI's VR and IDRs reflect its strong domestic franchise, improved capital base
and balance sheet management, more diversified funding sources, its stable
performance through the cycle, while maintaining healthy risk indicators and
BCI's foreign and local currency long-term IDRs have a Stable Outlook.
Downward pressure could result from a deterioration of its capital adequacy
ratios, with a FCC ratio falling and remaining below 8.5%, either from a
smaller than planned capital increase or from lower profitability in the
medium term. BCI's ratings could also be under pressure if its operating
return on assets falls and remains below 1.5% in the medium term, or if any
unexpected risk related to the acquisition of CNB deteriorates BCI's
profitability or capital base. Upside potential currently appears limited but
could stem from continued growth coupled with a material improvement of its
capital base, with greater levels of core capital, while maintaining its sound
overall performance, low risk profile and ample liquidity.
At March 31, 2013, BCI's operating profit to total assets declined to 1.48%
(from 1.97% one year before) mainly due to a lower yield from its
inflation-indexed assets and lower results from financial transactions.
Although lower than BCI's average, Fitch considers this level as adequate and
expects the bank's profitability to moderately improve throughout 2013 as
inflation levels are expected to rise somewhat.
BCI's capital base has significantly improved since 2008 when the bank changed
its dividend policy and decided a retention of 70% of the bank's earnings.
This has benefited BCI's capital, and its Fitch core capital ratio has
improved to 9.06% at March 31, 2013 and its regulatory capital to
risk-weighted assets to 13.67%. Although BCI's Fitch core capital ratio still
lags those of its international peers rated in the 'A-' category (median of
10.75% for banks with the same viability rating at Dec. 31, 2012), Fitch
considers BCI's capital levels to be adequate to its current ratings level and
expects that its sound and stable profitability will allow it to maintain them
Established in 1946, CNB is the second largest Miami-based bank, with 26
branches in Florida and almost 23 thousand clients. At March 31, 2013 it had
total assets of USD 4,737 million and tangible common equity of USD 607
million. Its asset quality is sound although loans are concentrated in real
estate (residential and commercial), with a highly collateralized loan book
(82.9% of the total had mortgage collateral, of which 37.4% were residential
and 49.4% commercial mortgages) and non-performing loans ratio of 0.81%. Its
funding base is sound, with and core and non-interest bearing deposits
accounting for 86.3% and 40.7% of the total, respectively, and a loan /
deposits ratio of 72.4%. Profitability is somewhat low, but BCI's target is to
recover its better pre-crisis levels by taking advantage of its extensive
know-how in the small and medium sized enterprises (SMEs) and affluent
segments and increasing CNB's cross sell, which is substantially lower than
that of BCI.
BCI, which is 63.83% controlled by the Yarur family, is a multi-product entity
that is currently ranked fourth in the financial system with 13% of loans and
15.68% of sight deposits (excluding those of Corpbanca's subsidiary in
Colombia); it also has eight subsidiaries, 388 commercial contact points and
Fitch has affirmed BCI's ratings as follows:
--Foreign and local currency long-term IDRs at 'A-';
--Foreign and local currency short-term IDRs at 'F1';
--Long-term national rating at 'AA+(cl)'
--Short-term national rating at 'N1+(cl)';
--VR at 'a-'
--Support rating at '2';
--Support rating floor at 'BBB+';
-- Long term foreign currency and national long-term rating on its senior
unsecured bonds at 'A-' and 'AA+(cl)', respectively;
--National long-term rating on its senior unsecured bonds totaling MXN3.25
billion at 'AAA(mex)';
--National long-term rating on its subordinated bonds million at 'AA-(cl)';
--National equity rating at 'Primera Clase nivel 1'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
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