Banco de Chile
Banco de Chile
Telephone: (56) (2) 637-1111
Toll Free: (56) (600) 637-3000
Fax: (56) (2) 637-3034
Web site: http://www.bancochile.cl
Founded: 1893 as S.A. Banco de Chile
Total Assets: $15.55 billion (2003)
Stock Exchanges: Bolsa de Comercio de Santiago London Bolsa de Madrid New York
Ticker Symbol: CHILE (Santiago); BCH (New York)
NAIC: 522110 Commercial Banking; 522210 Credit Card Issuing; 522291 Consumer Lending; 522310 Mortgage and Other Loan Brokers; 523120 Securities Brokerage; 523920 Portfolio Management; 523930 Investment Advice; 524113 Direct Life Insurance Carriers; 561400 Collection Agencies
Banco de Chile is the second largest private bank in Chile and the largest that remains under Chilean ownership. As a full-service bank its activities include commercial loans, foreign exchange, capital-market services, cash management, and noncredit services such as payroll and payment. A wide variety of treasury and risk-management products are offered to corporate customers. Personal banking products include credit cards and residential mortgage, auto, and consumer loans as well as deposit services such as checking and savings accounts and time deposits. Through its subsidiaries, Banco de Chile offers services such as securities and insurance brokerage, mutualfund management, financial advisory services, and factoring.
First Banco de Chile: 1893–2001
Banco de Chile was founded in 1893 by the merger of three of the oldest banks existing at the time: Banco Nacional de Chile, Banco Agricola, and Banco de Valparaiso. It opened its doors at the beginning of the following year in 25 cities. A London office was opened in 1906. Banco de Chile quickly established itself as the nation's foremost private bank. In 1964 it held 29.5 percent of the deposits in all 24 domestic commercial banks and 43.5 percent of the assets, an amount almost equal to the next nine ranking banks. No individual held as much as 3 percent of the bank stock, but 30 shareholders held 20 percent. In their book Landlords & Capitalists, Maurice Zeitlin and Richard Earl Ratcliff concluded that the bank "is under the joint control of several dominant owning families, whose diverse economic interests transcend industry, commerce, agriculture, and banking. These families, indeed, are 'finance capital' personified." The authors specifically mentioned in this regard "the Larraín, Matte, and Valdés families, among whom are the descendants of the founders of the three original banks that merged to form the Bank of Chile … in collaboration with the Cortés and Cousiño families, with whom they also have close kinship ties."
Unlike most other Chilean banks, Banco de Chile was not nationalized by the left-wing government of President Salvador Allende Gossens in the early 1970s, but the state took a stake of more than 45 percent of the shares. After the military coup that overthrew this government in 1973, an economic program of virtually unfettered free enterprise was adopted. Between 1975 and 1978, when, in terms of net worth, Banco de Chile was the third largest private enterprise in the nation, the government's shares were placed on auction and purchased by a group led by Javier Vial Castillo. The bank's resources enabled Vial—who became its president—to form the second largest conglomerate in Chile, taking in 25 of the nation's largest 250 private enterprises. Leasing Andino S.A., established in 1977 as an affiliate (and later absorbed by its parent), became the largest company in its field.
Chile's rapid economic expansion in this period proved unsustainable when the United States began raising interest rates in 1979 to end the inflation that had resulted from sharp increases in the price of oil. By 1982 almost all of the capital and reserves of Chile's banks and finance companies had been committed to loans that could not be repaid. In the case of Banco de Chile, nonperforming loans in 1983 took up more than twice its capital and reserves. Vial's BHC group, which held 25 percent of the bank, owed it about CLP 19 billion ($487 million). Banco de Chile was turned over to the government that year. The central bank bought at least $1 billion of Banco de Chile's nonperforming loans at book value, issuing ten-year bonds on condition that the shareholders divert future dividends to pay off the debt.
Under a "popular capitalism" program, the government in 1985 lent money at zero real-interest rates to encourage taxpayers to buy stock in Banco de Chile (and four other banks). Some 39,000 did so, reducing the stake of the previous 16,000 shareholders to just 12 percent. Vial was sentenced to jail for fraud and served nine months. In 1996 the bank still owed the nation's central bank CLP 706.48 trillion ($1.74 billion). At this point the debt was rescheduled and assigned to a subsidiary of Banco de Chile, which agreed to pay it off from funds allotted to dividends over 40 years at 5 percent interest. Meanwhile, the central bank held 64 percent of Banco de Chile's shares as collateral and was essentially a preferred shareholder.
Although no private shareholder held a dominant position in Banco de Chile, leadership had passed to Empresas Penta S.A., a holding company based on the acquisition of an insurance company in 1982 by five former executives of the Cruzat-Larraín conglomerate, which also had collapsed in the wake of the national financial crisis. Following a 1987 law that expanded the services that banks were allowed to offer, Banco de Chile established four subsidiaries for purposes such as brokering securities, managing mutual funds, and offering financial advice. During 1996–97 the bank's subsidiaries had a larger share of mutualfund management and leasing contracts than those of any other bank. A 1997 law extended further the activities in which banks could take part, following which Banco de Chile established subsidiaries for purposes such as factoring and insurance brokerage. It also had a significant presence abroad, with a branch in New York City, an agency in Miami, and offices in Buenos Aires, Mexico City, and Sao Paulo. Although the bank had dropped from first to third in size due to mergers in the industry, it was still Chile's most efficient and profitable financial institution, according to LatinFinance, which awarded it the title "Best Bank in Chile" in 1997. The previous year it achieved an impressive 27.62 percent return on equity.
Empresas Penta, the bank's leading shareholder with 5.7 percent of the stock in 1996, raised its stake to 14 percent in 1999. A working alliance with other shareholders and directors commanded approximately 30 percent of the shares (excluding the central bank's) and thereby appeared to offer security against the prospect that the bank might be taken over by an outsider. Nevertheless, the Luksic group—backed by the resources of Quiñenco S.A., one of the two or three biggest holding companies in Chile—began buying the bank's stock in 1999, setting off a bidding war with Penta. Quiñenco, which had only recently acquired another big Chilean bank, Banco de A. Edwards, held 13 percent of Banco de Chile in December 2000, when it purchased Penta's stake (now 35 percent) for $541 million. Banco de Chile and Banco de A. Edwards were merged at the beginning of 2002 to form, at the time, Chile's largest bank. It retained the Banco de Chile name.
Banco de A. Edwards: 1866–2001
George Edwards was the physician on a British craft raiding Spanish possessions along the Pacific coast of South America in 1803, when he fell in love with a young Chilean woman and deserted ship. Of their eight children, the most financially successful was Agustín Edwards Ossandón, who sold goods to the miners who worked for his father and became a millionaire by age 30. After making still more money with an ironworks supplying a railroad, he turned to finance, founding Chile's first insurance company in 1853 and Banco de A. Edwards y Cia in 1866. (Some sources give an earlier date and credit Edwards as the nation's first private bank.) He also played a leading role in developing Chile's nitrate deposits and cornered the world copper market in 1871–72. Banco Edwards was highly lucrative; although it held only 8 percent of the nation's banking market during 1870–85, it accounted for 30 percent of the profits.
Edwards family members not only owned the bank that bore their name and large landed estates but also investments in railroads, telegraph lines, newspapers, copper mines, and nitrate fields. Agustín Edwards Ross, son of the founder, established partnerships between the family's nitrate and railway holdings and the most powerful English firms. Agustín Edwards McClure, his son, cultivated the family's close relations with England during his long term as Chile's ambassador in London. In 1920 he added to the family fortune by selling its 60 percent share of the bank to the Anglo-South American Bank Ltd. The Edwardses eventually regained control of the bank during the 1930s or 1940s, when British economic involvement in Latin America was sharply reduced, first by the Great Depression, then by World War II. In the mid-1960s the Edwards interests held at least 42.75 percent of the shares. Agustín Edwards Eastman, grandson of Agustín Edwards McClure, was vice-president of the bank. The president was Arturo Lyon Edwards, his first cousin once-removed. Banco Edwards was the nation's fifth largest bank at the time.
We are a leading financial corporation with a prestigious business tradition. Our call is to provide financial services of excellence, through innovative and effective solutions, so as to permanently build up shareholders value.
After President Salvador Allende took office in 1970, his left-wing government nationalized the bank, expropriating its assets and turning the proceeds over to the newly established Banco Nacional de Curicó, which later became Banco Nacional. A military coup overthrew Allende's government in 1973. At the end of the decade, the Edwards family acquired Banco Constitución and reopened it under the Banco Edwards name. Because, unlike Banco de Chile, Banco Edwards did not, relatively speaking, make reckless loans or engage in ultimately disastrous dollar borrowing, it survived the national banking crisis of 1982. The controlling interest, however, fell into the hands of the Ergas family in 1986. Banco Edwards expanded its scope when a 1987 law allowed the nation's banks to enter fields such as stock brokerage and mutual-fund management. During the first half of the 1990s it fared well, exceeding the banking system as a whole in capital growth and profit margin.
In 1995 Banco Edwards offered American depositary receipts (the equivalent of common stock) in New York and other international markets. The sum raised enabled the bank to pay off its debt of CLP 51.09 billion (about $128 million), stemming from the earlier banking crisis, to the central bank. Agustín Edwards del Rio, son of Agustín Edwards Eastman, opposed the share offering and, on not prevailing, resigned as bank president. After another law, in 1997, allowed banks to expand their operations still further, Banco Edwards was one of the first to establish subsidiaries for leasing and factoring.
Members of the Ergas family held 51 percent of the shares in 1998, while the Edwards clan held 16.5 percent. With the growing concentration of the Chilean banking system into fewer hands and dissension within the Ergas family, a takeover bid became inevitable. It came from the Luksic group, which, acting through its chief holding company, Quiñenco S.A., purchased a majority share of the bank in 1999 for $283.3 million.
Merged Bank of Chile: 2002–03
After purchasing the controlling interest in Banco de Chile in 2000, Quiñenco merged it with Banco Edwards into a combined Banco de Chile effected at the beginning of 2002. The former had been the nation's third largest, and the latter the nation's sixth largest, bank at the time. The merged entity was briefly Chile's largest bank, but in 2002 Banco Santiago and Banco Santander Chile were merged into a combined Banco Santander Chile that was majority-owned by the Spanish bank Banco Santander Centro Hispano.
Under the merger terms, shareholders of Banco de Chile received shares equivalent to 66 percent of the merged bank and shareholders of Banco Edwards shares equivalent to the remaining 34 percent. Banco Edwards's earnings of $5.3 million in 2000 compared poorly with Banco de Chile's $143 million, and its return on equity of 1.44 percent was even worse compared with the latter's 27.27 percent, which had made it the best-performing bank in Chile in 2000. On the other hand, the old Banco de Chile brought with it the considerable liability of its debt to the central bank, although with the merger the central bank's holding of the merged bank's shares fell to 42 percent. Each bank brought different strengths to the merger. While Banco de Chile offered a full range of services to both individuals and corporate customers, Banco Edwards had traditionally targeted wealthy individuals and midsized companies, and the merged bank planned to retain the Edwards name for high-end products. ("Banco Creditchile" was the brand name given to Banco de Chile's services to lower-income individual customers.) By the end of 2002, more than 50 branches had been merged. At the end of 2003, the new Banco de Chile had 224 branches. It earned CLP 130.55 billion ($217.8 million) that year.
Banchile Administradora General de Fondos S.A.; Banchile Asesoria Financiera S.A.; Banchile Corredores de Bolsa S.A.; Banchile Corredores de Seguros Ltda.; Banchile Factoring S.A.; Banchile Securitiadora S.A.; Promarket S.A.; Socofia S.A.
Agreements and Special Business; Company Banking; Creditchile; Corporate and International; Credit Risk; Finance; Marketing; Operations and Technology; Personal and Branch Banking.
Banco Santander Chile.
- Banco de A. Edwards y Cia is founded.
- Banco de Chile is founded from the merger of three banks.
- The bank far exceeds all others in Chile in deposits and assets.
- Chile's government now holds 45 percent of the bank's shares.
- The government-owned shares are auctioned to a group led by Javier Vial Castillo.
- Banco Edwards has been restored after almost a decade of nationalization.
- Banco de Chile cannot pay its debts and is turned over to the government.
- The bank returns to private management.
- The Luksic group wins majority control of Banco Edwards.
- The Luksic group purchases a controlling interest in Banco de Chile.
- The Chile and Edwards banks are merged and continue under the Banco de Chile name.
"Best Bank in Chile," LatinFinance, October 1997, p. 34.
Fazio, Hugo, Mapa actual de la extrema riqueza en Chile, Santiago: LOM-Arcis, 1997, pp. 307–11.
——, La transformación de la economía chileno, Santiago: LOM Ediciones, 2000, pp. 175–77.
Galloway, Jennifer, "Day of Reckoning," LatinFinance, November 1999, pp. 27–29.
——, "Fair Market Value for All?," LatinFinance, December 2001, pp. 29–31.
Kinzer, Stephen, "Chilean's Bid for a Comeback," New York Times, September 19, 1983, pp. D1, D8.
Merino, Robert, "La saga de los Agustines," Capital, May 2000, pp. 28–31.
"Nice Economy," Banker, October 1988, pp. 122–24.
Pérez Villamil, Ximena, "Asuntos de familias," Capital, August 1998, pp. 32–37.
Soto, Héctor, "Cambio de mando," Capital, January 2001, pp. 18–23.
Zeitlin, Maurice, and Richard Earl Ratcliff, Landlords & Capitalists, Princeton, N.J.: Princeton University Press, 1988, p. 66 and pp. 119–25.