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Mid-Cap Corner: Banking On Chile

May 28, 2012 6:44 pm
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Investing in emerging markets is tricky, if not gut-wrenching these days and Latin America is no exception. Led by the rapid downturn in Brazilian equities and ETFs since early April, other Latin American exchanges, stocks and ETFs have followed suit.

Chile has been dragged into the muck as well, but there are still reasons to be bullish about this country. After all, this one of the most politically stable countries in Latin America, home to one of least risky and transparent economies in the region and arguably the healthiest banking sector in the region.

Regarding Chilean banks, large-caps Bacno Santander Chile (NYSE: BSAC) and Banco de Chile (NYSE: BCH) get most of the attention, but an patient investors may find an intriguing opportunity with a mid-cap name, CorpBanca (NYSE: BCA).

With a market cap of almost $3.1 billion, CorpBanca engages in typical banking businesses such as checking and savings accounts as well as commercial and residential loans. At the end of last year, the company had almost 120 branches throughout Chile. Adding to the bull case is CorpBanca’s dividend yield of 6.7%. That’s more than twice Banco Santander Chile’s and nearly double that of Banco de Chile’s yield.

CorpBanca pays its dividend annually and the payout has risen nearly fivefold since 2006. Earlier this year, CorpBanca, Chile’s fourth-largest bank, announced it is entering the rapidly growing Colombian market with the acquisition of Banco Santander’s (NYSE: STD) assets in that country. That deal led to a new share issuance of $550 million and that dilution is one of the reasons the stock has lost almost 9% in the past month.

There are other reasons to be bullish on CorpBanca. Since Chile isn’t rife with public sector pensions, there is a mandatory savings plan in place for state workers. Those extra deposits and assets work in favor of the country’s banks as does the government surplus. Not to mention, Chileans are big savers with the current savings rate standing at an astonishing 21.6%, according to Top Foreign Stocks.

Compared to U.S. banking giants such as Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC), just to name a few, CorpBanca is pricier based on forward earnings and book value, however, the superior yield and lower beta underscore CorpBanca as a viable alternative less trustworthy U.S. banking fare.

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