Latin America’s Worst Bank Stock Offers Highest Potential Return

  • Itau Corpbanca offers highest potential gains among lenders
  • Stock has been dragged following losses in first quarter

Itau Corpbanca is the Latin American lender that offers investors the juiciest potential returns, equity analysts say. It’s also the worst performer in the region as investors ignore buy recommendations and wait for a recovery in its earnings.

Itau Corpbanca’s 12-month average target price is 31 percent above the current price, the largest difference among 27 Latin American publicly traded lenders with at least three analyst recommendations. Yet its shares have fallen 5.1 percent in pesos this year, versus an average gain of 15 percent for its peers in the region.

The slump in shares is partly due to Chile’s faltering economic growth, according to Aldo Morales of BICE Inversiones, the only analyst who has downgraded the stock this year. Investors are also cautious on the bank so soon after its creation in April through the merger between Chile’s Corpbanca and the local unit of Itau Unibanco Holding SA, Latin America’s biggest bank.

"There’s no appetite for Chile’s banking sector as a whole, with inflation slowing, a potential fall in mortgage lending and unemployment trending higher," Morales said. "Nobody doubts that there’s value hidden in those stocks, but they’re waiting for a better moment to enter."

A key moment for the stock will come later this month, when the lender reports its monthly results for May, said Marcelo Catalan, the head of equity research at Banco de Credito & Inversiones. Itau Corpbanca lost 26 billion pesos ($38.3 million) in the first quarter after increasing provisions due to downgrades of energy producers, including companies in Colombian oil sector, and because of losses on Colombian currency hedges.

"The effect from the provisions should start to fade in coming months and we should be able to focus on the bank’s actual fundamentals and performance," Catalan said. "Synergies from the merger with Itau will become much more evident in 2017."

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