Santander, Banco de Chile Cut to `Sell' at Deutsche on Slowing Earnings

Banco Santander Chile and Banco de Chile, the country’s two largest lenders, were cut to “sell” at Deutsche Bank AG, which cited their outperformance of the benchmark index and prospects of slowing earnings growth.

The two banks’ ratings were lowered from “hold,” analysts Tito Labarta and Mario Pierry wrote in an e-mailed note to clients. Santander Chile is up 40 percent this year in Santiago trading, while Banco de Chile has surged 51 percent. Chile’s Ipsa index has risen 29 percent in the same period.

“We now think valuations are too demanding and such high profitability is likely unsustainable,” the analysts said.

Chilean banks’ profits probably will rise an average 40 percent this year, among the highest in the region, on solid loan growth and lower provisions, slowing to 7 percent next year on a higher corporate tax rate and pressure on interest margins, Deutsche Bank said.

Chilean banks fetch 4.8 times trailing book value, 60 percent above their historical average and are at a 95 percent premium to Brazilian peers compared with a 44 percent historical average, the analysts wrote.

Santander rose 2.3 percent to 42.7 pesos at 11:15 a.m. New York time while Banco de Chile rose 0.3 percent to 68 pesos.

To contact the reporter on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net.

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