CorpBanca's plan to distribute 100% of 2010 profits in dividends raises eyebrows

Wednesday, January 26, 2011

Chilean bank CorpBanca (NYSE: BCA) has announced it will distribute 100% of last year's 119bn-peso (US$242mn) profits in dividends, a move that is seen as contradictory given its upcoming capital increase.

The bank, Chile's fifth-largest lender, will on Thursday (Jan 27) ask shareholders to approve a US$740mn capital increase by issuing 40bn new shares to lift its capital by 15%.

"If you need money, the first source you use is your own funds," analyst at brokerage Banchile Claudia Benavente told BNamericas.

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The bank's board will make the proposal to shareholders on February 24, according to a filing sent to local securities and insurance regulator SVS.

The bank adopted the strategy of distributing 100% of profits in dividends in 2008 and has kept it ever since, given its large equity base, Raúl Barros, senior analyst at stock brokerage BBVA Chile's research department, told BNamericas.

The capital increase is aimed at funding the bank's expansion plans over the next few years and strengthening its capitalization ratios, and it is not related to the potential entry of Brazil's federally controlled Banco do Brasil (BB) into the bank's ownership, according to CorpBanca.

CorpBanca's holding company, Corp Group, has held talks with BB to enter CorpBanca's ownership through a capital increase as a minority shareholder for no more than a 10% stake. Executives from the banks have said the idea is to carry out the transaction during this year's first quarter.