Bank of America Corp (BOA) plans to bolster capital by divesting most of its stake in China Construction Bank Corp (中國建設銀行), locking in investment gains as concern mounts that the Asian lender’s defaults may rise as China’s economy slows.
BOA will sell 10.4 billion shares this month in private transactions for a profit of about US$1.8 billion, leaving the second-biggest US lender with a 1 percent stake in Beijing-based Construction Bank, according to a statement on Monday. The Charlotte, North Carolina-based bank said the buyers were a group of investors, without providing names.
REPLENISHMENT
BOA chief executive Brian Moynihan is selling assets to replenish the bank’s capital and meet regulatory requirements for risk buffers after faulty mortgages led to about US$40 billion of expenses. The lender joins Goldman Sachs Group Inc in paring stakes in China’s two biggest banks by tapping the stocks’ biggest one-month rally in four years.
SHARES
Shares of Construction Bank rose 0.4 percent to HK$5.55 in Hong Kong trading as of 2:20pm yesterday, curbing the lender’s decline this year to 21 percent. The stock rallied 21 percent last month, the most since October 2007. Industrial & Commercial Bank of China Ltd (ICBC, 中國工商銀行), the world’s biggest lender by market value, gained 29 percent last month, helping curtail its drop this year to 17 percent.
Temasek Holdings Pte, Singapore’s state-owned investment company, and Chinese institutional investors are among the buyers, Dow Jones reported, citing people familiar with the transaction it didn’t identify.
Goldman Sachs, the fifth-biggest US bank by assets, raised US$1.1 billion selling shares of ICBC, two people with knowledge of the matter said last week. It was the third time that New York-based Goldman Sachs trimmed its investment in ICBC, which has generated US$2.65 billion of gains for the US bank since the fourth quarter of 2006.
STRENGTHENING
BOA chief financial officer Bruce Thompson said the sale would strengthen the firm’s Tier 1 common capital ratio by about 24 basis points under so-called Basel I international requirements.
“Our decision to sell the bulk of our remaining shares in China Construction Bank is consistent with our stated objective of continuing to build a strong balance sheet,” Thompson said in the statement. “This action, supplemented by the related realization of deferred tax assets, will generate approximately US$2.9 billion in additional Tier 1 common capital.”
Shares of BOA, which sold about half of its stake in Construction Bank last quarter, fell 2.6 percent to US$6.05 in New York trading. The lender has plunged more than 50 percent this year amid investor concern that it may sell shares to replenish capital.
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