UPDATE 2-Ita+¦ to expand in Chile, Colombia with CorpBanca deal

SAO PAULO/SANTIAGO, Jan 29 (Reuters) - Brazil's Itaú Unibanco Holding SA, Latin America's largest bank by market value, took a key step in its overseas expansion plan on Wednesday with a deal to take control of Chilean lender CorpBanca SA.

Under the terms of the transaction, Itaú will pump $652 million into its Chilean unit, and then combine it with CorpBanca, according to a securities filing. The combined entity, which will be named Itaú CorpBanca, will be 50.5 percent-owned by the São Paulo-based lender and also will manage the Colombian units of both banks, the filing added.

For Itaú, an association with CorpBanca would not only give it an important foothold in retail banking in Chile, but also provide a platform to grow in Colombia, probably South America's fastest-growing economy last year. The new lender will have a market value of over $8 billion, $44 billion in assets, a $33 billion loan book, over 10,000 employees and 390 branches.

For years Chief Executive Officer Roberto Egydio Setubal sought to buy regional rivals, but backed off due to high valuations. Itaú began operations in Chile with the purchase of Fleet Boston Corp's local unit in 2006 and later HSBC Holdings Plc's operations in 2011, and set up a wholesale banking operation in Colombia in 2012.

"We see all the right conditions for expansion - this is a stepping stone towards business opportunities in Chile, Colombia, Perú, Central America," said Ricardo Marino, Itaú's head of Latin America businesses, at a conference call.

The overall value of the deal was not immediately clear. But given the assets and other indicators, it is set to be the biggest transaction in Chile's financial industry and the largest Latin America banking merger since the combination that created Itaú Unibanco in 2008, according to Thomson Reuters data.

Carlos Firetti, head of equity research for Bradesco BBI in São Paulo, said the deal could help Itaú leverage growth and returns in Chile thanks to bigger scale. "We consider the deal in the way it was structured, with only $652 million in new money, as very positive" for Itaú, he said in a client note.

Shares of Itaú shed 1.8 percent to 29.53 reais, scrapping two straight days of gains. CorpBanca plunged 12 percent to 6,199 Chilean pesos, probably reflecting disappointment among investors that terms were too favorable to Itaú and the lack of a buyout offering to minority shareholders, traders said.


Apart from Itaú, Spain's Banco Bilbao Vizcaya Argentaria SA and Canada's Bank of Nova Scotia were also interested in the Chilean bank, sources told Reuters in December.

In addition to the capital injection into Itaú's Chile unit, Itaú will buy a 33.58 percent stake in CorpBanca through a shareholder agreement with majority shareholder Corp Group. Such a stake could be worth about $2.4 billion at CorpBanca's Tuesday closing price, according to Thomson Reuters calculations.

The combination allows Itáu to access Colombia's red-hot retail banking market - dominated by a small number of local behemoths. Itaú CorpBanca will own about 75 percent of CorpBanca's units in Colombia, Banco Corpbanca Colombia SA and Helm Bank Corp.

Santiago-based CorpBanca is controlled by Alvaro Saieh, a Chilean billionaire of Palestinian ancestry. His empire includes retail unit SMU, which owns supermarket chain Unimarc, and Chilean national daily newspaper La Tercera.

However, he has struggled in recent months with SMU, which revealed accounting errors in a review of first-quarter earnings in August, raising its liabilities and leading it to breach debt covenants. Fears of contagion pushed CorpBanca shares to an all-time low at the time, although they have since largely recovered.

Since news that CorpBanca was in merger talks broke in November, the bank's shares are up around 20 percent.

Saieh began talks in November with Itaú and other lenders to pursue a merger, an outright sale, or creation of a structure allowing him to remain a relevant shareholder in CorpBanca, sources told Reuters in December.

Itaú will extend Saieh's Corp Group a $950 million loan backed by CorpBanca's shares, Marino said.