Banco Itau Chile (ITCL) 2015 Q1 法說會逐字稿

(audio in progress) -- we have with us Mr. Fernando Massu, Chief Executive Officer; Mr. Eugenio Gigone, Chief Financial Officer; and Ms. Claudia Labbe, CorpBanca's head of investor relations. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions). I must advise that the conference is being recorded today. We now pass the floor to your speaker today. Mrs. Labbe, please go ahead.

Good morning. Thank you for joining our conference call of our first-quarter 2015 financial results. I am Claudia Labbe, head of investor relations. Here with me, Mr. Fernando Massu, CorpBanca's CEO and Mr. Eugenio Gigogne, CorpBanca's CFO.

I would like to remind you that all figures are presented in Chilean pesos unless otherwise stated and that our remarks may include forward-looking information and our actual results could differ materially from what is discussed.

To begin, I would like to highlight that the first-quarter 2015 net income attributable to shareholders (inaudible) CLP39.7 billion similar to first-quarter 2014 results representing a 1.1% decrease year-over-year. The main drivers for this nearly flat year-over-year result are explained below. On one hand, the positive drivers were growing commercial activity in Chile and Colombia, lower cost of funding in Chile, higher inflation in Colombia, one-time other operating income coming from our Colombian operation and lower one-time expenses related to the merger process in Colombia.

On the other hand, the aforementioned factors were offset by flat (inaudible) in Chile and higher cost of funds in CorpBanca Colombia that generated lower year-over-year consolidated net interest income. On a quarter-over-quarter basis, net income attributable to shareholders decreased 40.1% mainly due to one-time revenue compared to previous quarters. In fourth-quarter 2014, as a result of our reassessment of (inaudible) under Colombian GAAP in our banking subsidiary in that country and a new tax law in Colombia, we recognized an extraordinary one-time tax benefit that positively impacted our fourth-quarter 2014 results.

Total loans, excluding interbank and contingent loans, reached CLP14.4 trillion as of March 31, 2015, a 6.8% increase year-over-year as a result of all [recent] segment performance, reflecting a significant contribution of project finance and infrastructure activity. Our Chilean operations increased by 14.5% to CLP9.2 trillion allowing CorpBanca to achieve a marketshare of 7.6% on an unconsolidated basis (inaudible), 33 basis points higher than first quarter 2014.

As of March 2015, CorpBanca was the fourth-largest private bank in Chile based on loans and deposits and had slightly close to [GAAP] to reserve (inaudible). As of February 2015, according to the Superintendencia Financiera de Colombia, [SC] CorpBanca bank as the sixth largest private banking group in Colombia based on total assets, total loans and total deposits.

During the first quarter 2015, net operating profit before loan losses increased by 0.9% year-over-year due to sound performance of assets and liability management, higher fee and commission income and other operating income. Net operating profit before loan losses decreased 10.7% quarter-over-quarter mainly due to the impact of flat UF variation in Chile that offset the benefit from growing loan activity.

Net positions for loan losses increased by 28%, or CLP8.5 billion year-over-year primarily as a result of growing loan activity in Chile and Colombia. On a quarter-over-quarter analysis, the net provisions for loan losses decreased by 9.1% in comparison to fourth quarter 2014 as a result of higher releases and loan recoveries of commercial loans during the first quarter of 2015, lower nonperforming loans associated with consumer loans in Colombia.

Total operating expenses increased by 1.1% equivalent to CLP1.2 billion due to an increase in advisory services related to the pending merger between Itau and CorpBanca in Chile, higher salaries and benefits due to the collective bargaining negotiation and costs related to our sponsorship of the Chilean national soccer team in 2015. On a quarter-over-quarter basis, operating expenses decreased from CLP125.1 billion to CLP112.5 billion as a result of efficiency, strategy and synergies that have been delivered in Colombia. Before starting with the presentation, Mr. Massu would like to comment on some recent highlights.

Thank you, Claudia. Good morning. The first-quarter 2015 results reflect the strength and diversification of CorpBanca revenue generation. While the Chilean banking industry itself was negatively affected by low inflation and higher operating expenses that resulted in a 22.9% reduction in net income year-over-year, CorpBanca's net income did not materially change compared to first quarter 2014. Indeed, any negative impact due to lower inflation revenues were offset by strong revenue generated in Colombia.

The contribution of CorpBanca to the Chilean banking industry net income rose from a 7.9% marketshare in first quarter 2014 to a 9.9% marketshare in 2015, a 192 basis point increase in 12 months. Thus, CorpBanca's marketshare and net income exceeded its marketshare in loans, 9.9% versus 7.6% in March 2015. At the same time, our REIT index decreased from 2.3% in first quarter 2014 to 2.19% in first quarter 2015 reflecting our healthy asset quality and it remained below Chilean banking industry in both time periods -- 2.45% in March 2014 versus 2.42% in March 2015.

Our operations in Colombia have been experiencing the positive impact of cost savings already achieved from the completion of the merger between CorpBanca Colombia and Helm Bank. Synergies are being delivered at scale. With respect to the pending merger between Itau and CorpBanca, the Board continues to work on the merger process taking into consideration the best interest of all the shareholders of the bank and in full compliance with all its legal and contractual obligations under the transaction agreement. Now Claudia will refer to CorpBanca's strengths during first quarter 2015.

Thank you, Fernando. To begin, let's move to slide number 2. This chart shows our 12-month trailing net income from December 2008 through March 2015 in Chile and Colombia. During this period, our net income for the 12-month trailing March 2015 reached record level of CLP225.8 billion, an increase of 50% year-over-year. As you can see, there is a significant improve in both Chile and Colombia particularly pre-2014. According to our 12-month trailing March 2015, the Chilean operation totaled CLP149.9 billion and CorpBanca Colombia took out CLP76.9 million, equivalent to one-third of CorpBanca's consolidated net income compared to 15.3% in 2013. Our 2015 financial results continue to demonstrate that greater business diversification has resulted in an increasing revenue stream.

Next slide, page number 4. The following table presents the results generated in Chile and Colombia separately for the first quarter 2015. The financial result of CorpBanca Chile includes some expenses associated with our Colombian operations, particularly interest expenses in connection with the portion of the acquisition of today known CorpBanca Colombia that was not funded with equity to amortization of the intangible assets generated in the first acquisition in Colombia and the impact of our fiscal hedge, which is a consequence of management efficiency to hedge the impact of the volatility of the US dollar/Chilean peso exchange rate in the net income attributable to shareholders. We would not otherwise exceed in the [absence] of such decision.

The adjusted first-quarter 2015 results present in our opinion the closest approximation of CorpBanca on a standalone basis. The adjustments mentioned above are related to CLP2.8 billion associated with the funding for the acquisition of CorpBanca Colombia, CLP5.6 billion of hedged taxes in US dollars, CLP2.6 billion of intangible asset amortization and integration costs in Colombia. Taking into account these adjustments, our estimated results for our operations in Chile is CLP32 billion of adjusted net income in first quarter 2015 while our operations in Colombia is CLP31.3 billion.

Moving along to slide number 5, profitability. We achieved a return on average equity of 15.6% by the end of March 2015, an increase of 292 basis points compared to 12.7% as of March 2014. Previously between third quarter 2011 and fourth quarter 2013, our return on average equities were impacted by the capital injection to enable our organic growth in Chile and our acquisitions in Colombia totaling approximately $1.6 billion, a 137.1% increase over the same time period.

[The trend], now our return on average assets changed in December 2013. This shift was a result of the consolidation of CorpBanca Colombia for a full year in 2013 and of Helm Bank for a full year in 2014 and the higher UF variation in 2014, along with low monetary policy interest rate in Chile. During first quarter 2015, return on average equity remained stable compared to December 2014 and the industry average.

Next slide; let's talk about our marketshare. In Chile, our marketshare as of March 2015 on an unconsolidated basis was 7.6% reflecting an increase of 33 basis points compared to March 2014 and of 12 basis points compared to December 2014. This increase reflects our focus on economic sectors such as project finance and infrastructure activity that have remained stable growth drivers. As of March 2015, according to the SBIF in Chile, we are the fourth largest private bank in Chile in terms of the overall size of our loan portfolio with 11.3% of marketshare on a consolidated basis. In Colombia, despite the ongoing integration process relating to the Helm Bank merger, our marketshare remained stable reaching 6.4% as of February 2015 according to the SFC.

Moving along to number 7, talk about our asset quality. According to the SBIF, CorpBanca has maintained one of the lowest credit risk indexes measured as total loan loss allowances to total loans in the banking industry in Chile over the past five years consistent with one of our core pillars regarding high-quality loan portfolio.

Next slide, number 8. Continue to talk about asset quality. This chart illustrates our consolidated nonperforming loan ratio compared to the industry average in Chile. We believe that our risk management processes and methodology enable us to identify risks and resolve potential problems on a timely basis. CorpBanca's high asset quality was maintained following the acquisition of Banco Santander Colombia in 2012 and Helm Bank in August 2015. For a country breakdown, see Section 8 on the earnings report.

Finally, on slide number 9, our capitalization levels. Following the capital increase during first quarter 2013 in connection with the acquisition of Helm Bank, CorpBanca has maintained strong BIS ratios. With the consolidation of Helm Bank's risk-weighted assets and the goodwill deduction, the trend in the capital ratios remained sound. Thank you. Now if you have any questions, we would be happy to answer them.

(Operator Instructions). [Coway Amaro], [Company Nucleo].

Good morning. I have two questions. The first one is regarding the writeoff during the period. I was reading the release and on page 22, the total writeoff doesn't add up with the sum of Chile and Colombia writeoff amounts, so I was wondering what is the right number. That is the first question. The second question is what is the situation in which the Board would not call the shareholders meeting this week? What would have to happen for the Board not to call this week? Thank you.

I will take the writeoff number and give you the answer as soon as possible, Coway.

Okay.

I cannot answer the second question because that is a matter that only could be answered by the Board of Directors of CorpBanca.

But in your opinion what situation that would regard that?

As I already mentioned to you, I cannot answer that question. The Board today is going to be ordinary meeting and there is going to be another meeting to resolve if they are going to call for an extraordinary shareholder meeting at the end of this week. So I think that the Board is going to take an account all the information that they have. As you know, they are going to have also [Citi] Bank report valuation on exchange ratio taking on account the first-quarter results of both banks. So I can't answer why they are going to call or why they are not going to call if they do that. That is a decision that the Board should answer; I cannot answer it to you that question.

Regarding the writeoff, as of the first quarter, the total is correct and the breakdown is not. So I would correct the number for everybody.

Okay, thank you. If I may make a last question regarding ROE, if you can break down the ROE between Chile and Colombia this quarter, what was the recurring ROE that you want?

It is difficult to have an ROE for Chile since we have all the capital injection in Chile to invest in Colombia, so we should at least take out part of those capital increases that were for the sole purpose of increasing or investing in outside Chile in this case in Colombia. But, anyway, we can answer how much is the ROE for Colombia since they have allocated equity in that country and according to the Chilean GAAP, which is the way we consolidate all those results, as of March this year for Colombia, we had an ROE of 11.2%.

Okay. Thank you, Claudia. Thank you, Fernando also.

Alonso Aramburu, BTG.

Just a couple of follow-ups on Colombia. First of all, can you give us the amount of the one-time income that was booked this quarter in Colombia? I didn't see it in the press release. And second, did you book any negative tax effects from the fiscal reform in Colombia this quarter?

Alonso, sorry -- the first question was related to one-time?

Yes. You mentioned in the press release there were some one-time income benefits in Colombia this quarter, but I didn't see the amount.

When we compare this quarter to the previous quarters, the fourth quarter, if you remember, and probably the language was not the correct one, but what we were trying to explain is that in the fourth quarter 2014 we had one-time revenues in Colombia, which we do not have this quarter. And those revenues were roughly CLP10 billion related to the reassessment of the (inaudible) in Colombia, which generated an additional tax benefit.

Yes, I did see that, but if you look, I believe it is page 9 in the press release, you talk about some extraordinary provisions in the context of a lawsuit in Colombia that was sentenced to the favor of the bank in the first quarter (multiple speakers).

I don't have the number at hand, but I can give it to you. Yes, you are right. It was -- you are correct. I forget that.

Okay, just what the recurring number is for the quarter. Thank you. And my second question was if you guys -- if the bank had to book any tax effect from the tax reform in Colombia since all companies are booking the effects of the tax reform from last year, the wealth tax and also the higher corporate tax.

In our case, because we have to follow IFRS, all tax difference due to the tax reform were booked in 2014 and right now, the way that we compute deferred taxes takes into consideration the future tax rate and the current tax rate. So maybe there is a slight difference in the way that some banks might treat that in Colombia. You have to remember that we have to follow IFRS in Chile for many years, so all the information that we present from Colombia are already in compliance with [NIKS] 12, which is the one that treats tax deferred.

Okay, that makes sense. So then all the impact was booked in the fourth quarter of last year and this quarter is a recurring quarter?

Yes.

Great. Thank you.

(Operator Instructions) Juan Dominguez, Credit Corp Capital.

Good morning and thanks for hosting this call. I have a couple of questions. The first one is regarding other comprehensive income. The accumulated or comprehensive income went up from CLP94 billion to CLP150 billion, so that means that as you had another comprehensive loss of roughly CLP56 billion and I wonder what is the strategy there. I guess that is related to available [for sale] securities, so I wonder if you can give us some guidance on strategy on those securities.

And the second question is related to commercial lending. Commercial lending grew at a fast rate in Chile. You have really good commercial activity in that segment. I wonder if you can give us some guidance on the competitive landscape of that specific segment. And as you said in the report, you are focusing on infrastructure and (inaudible) finance. I wanted to know if you are targeting a marketshare on infrastructure projects in Colombia that are going to start requiring that probably this year.

Okay. Regarding the other comprehensive income, you have to remember that the way that we treat the investment in Colombia is that any change in exchange rate is related to investment in Colombia, which are -- in our case which are not related to the annual performance goes against the other comprehensive income. And since the devaluation that has been faced by the Colombian peso compared to the Chilean peso and compared to the dollar, creates an impact in the exchange rate that goes against the other comprehensive income impacting only equity, but not impacting the annual profit of the bank.

So what we have there is not an underperformance of an investment in available-for-sale securities, but it is just to recognize that a portion of our assets are invested in Colombia. That is the reason why we have always expressed that the market risk that is measured under the Chilean regulation for measuring market risk overestimates the true position of profitized trading that CorpBanca holds. So to be very clear, what is important here is that that impact is not related to an available-for-sale investment. It is just the translation risk that is related to our investment in Colombia.

Okay. Perfect with your results. The difference is just functional currency between the holding and the subsidiary?

Yes, we could easily eliminate that impact by taking an accounting hedge, but through our purview, because it doesn't have any true benefits because it is just accounting translation, is the reason why we're not doing that. And regarding the other things, I think that Claudia, maybe Fernando could give you some flavor.

What I could say in terms of commercial lending in Chile, we don't have a specific goal in that sense. We don't have a specific goal in terms of gaining marketshare in Chile. But saying that, we do have a very good demonstration in terms of project finance and all lending related to infrastructure financing in Chile. We would say that we are number one or two maybe in that area.

We are trying to do the same in Colombia, as you already mentioned. We are already supporting the authorities in Colombia and working with them and also working with the companies that are going through the options in Colombia to participate in the develop of the infrastructure in Colombia. So we are trying to have a principal role in Colombia on transactions.

So in summary, we are not trying to gain marketshare in Chile in the commercial lending, but we are going to grow in aggregate at the market do and in Colombia, we are trying to participate and to have a very main road in all the infrastructure development.

Thank you very much and if I can, I have another question regarding financial operations and FX. If you strip out the fiscal hedge and steal the net income from financial operations, and FX was relatively high this quarter and I wonder if you can give us color of why is that and if these numbers are sustainable.

Those numbers are, as you could remember, the way that we handle some portion of the market risk mostly is to instead of doing accounting hedge, which are very unflexible, when we have foreseen some volatility in term of our, for example, inflation rate or the [gain] rate in the case of what we are trying to hedge long-term funding, which is denominated in US dollars, we use a lot of trading [deliver] fees, which are not part of our (inaudible) trading, but they are part of a hedging strategy. So most of that is compensated by the line of net interest margin.

Actually when you see from our point of view of hedging and asset liability management profit, we were very stable during the first quarter of this year and when we compared that to last year, we are pretty much in line. So I would say that more than its response to speculative position or profitized trading, they are really a part of our hedging structure and those profits are a compensation of what we are facing in our net interest margin.

Okay. Thank you very much.

Thank you. There are no further questions at this time. Please continue.

Okay, thank you for joining our first-quarter conference call. We are looking forward to our next one. Good bye.

That does conclude our conference for today. Thank you all for participating. You may now disconnect.