Banco de Chile

The bank far exceeds all others in Chile in deposits and assets. The government-owned shares are auctioned to a group led by Javier Vial Castillo. Banco de Chile cannot pay its debts and is turned over to the government. The Chile and Edwards banks are merged and continue under the Banco de Chile name. 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, mutual-fund management, financial advisory services, and factoring. 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." 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 mutual-fund 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 Mia