Bank Mergers to be Closely Supervised

A Tender Offer Law came into effect on December 20 2000. The law features a provision concerning banking mergers. The origins of this provision can be traced back to the Banco Santander/Central Hispano merger. These were the ultimate controlling shareholders of the two major banks in Chile, Banco Santander and Banco Santiago. Both banks are still run independently but their combined market share amounts to approximately 28% of the market, which has triggered anti-competition concerns and resulted in investigations and reports by Parliament, the Central Bank, the Superintendency of Banks and the Antitrust Commission.

The new law states that prior approval of the Superintendency of Banks is required for the following:

• mergers and acquisitions of banks;

• purchases of all or a substantial part of their assets; or

• one group taking control of more banks, resulting in a combined market share that is 'significant'.

The law also stipulates the conditions that the superintendency may impose before granting clearance for the proposed merger. These conditions relate to measures that tend to lower the risks taken by the banks involved.

The superintendency shall clear or block any proposed merger within 60 days of the date of notification of the plan.

On December 26 2000 the superintendency issued Circular 3099/1374, which explains the meaning of 'significant market share'. Any transaction that results in at least 15% of all the placements in the Chilean banking system will require prior clearance. The superintendency will grant clearance provided that the relevant bank maintains a capital adequacy in accordance with the Basel Committee. In cases involving placements of more than 20%, the superintendency shall closely examine the proposed merger and may impose several conditions.

The new system is already being tested, since the Luksic Group (a Chilean group currently controlling Banco de A Edwards) has issued an offer to acquire control of Banco de Chile. The combined market share of the merger would be approximately 23%.

For further information on this topic please contact Cristobal Gumucio at Cariola Diez Perez-Cotapos & Cia Ltda by telephone (+56 2 360 4000) or by fax (+56 2 360 4030) or by e-mail ([email protected]).