Money

BofA may offload half CCB stake

By Hugh Son and Christine Harper (China Daily)
Updated: 2011-06-22 13:50

Sale would help it meet new reserve requirement international standards

SHANGHAI - Bank of America Corp may sell some of its $21 billion stake in China Construction Bank Corp (CCB) to bolster capital before new international standards take effect, said three people briefed on the plans.

Bank of America, the biggest US lender by assets, wants to keep about half its CCB shares so it can remain a strategic investor in the world's second-biggest bank by market value, said two of the people, who declined to be identified because the plans are private. The bank may decide to divest more holdings, with the sale taking place later this year, they said.

"This is obviously a forced sale - it's a big chunk of a valued enterprise in an attractive place in the world," said Greg Donaldson, chairman of Evansville, Indiana-based Donaldson Capital Management, with $465 million in assets, including Bank of America shares. "It's a relatively poor time to be selling because the Chinese stock market hasn't done well recently."

Selling the shares could help Bank of America raise capital to comply with tougher minimums that may be imposed by regulators as they try to prevent a repeat of the 2008 financial crisis. The Basel Committee on Banking Supervision is considering plans that may include a surcharge on the largest lenders, people briefed on those talks have said.

Based on current share prices, Beijing-based CCB has an estimated value of about $206 billion, a more than threefold increase from its market capitalization at the time of its October 2005 initial public offering in Hong Kong.

Related readings:  CCB's profits up 34.23% in Q1  CCB profit growth to continue rising  CCB not rule out merger with Russian banks  BofA eyes business expansion in China: report

Bank of America, which began investing in CCB before the IPO, owned 25.6 billion shares valued at $21 billion as of March 31, the Charlotte, North Carolina-based lender said in a May regulatory filing. The stake equals about 10.6 percent of CCB's Hong Kong-listed shares, according to Bloomberg data. A lockup period, in which Bank of America is prohibited from selling most of its shares, expires in August.

"It's a strategic relationship and it will continue to be one for a long time," said Larry DiRita, a spokesman for the US bank. Yu Baoyue, a spokesman for CCB, declined to comment. Bank of America has been selling assets including its Balboa insurance unit, First Republic Bank and holdings in BlackRock Inc to boost capital and focus on core clients.

The firm can build capital through earnings and doesn't need to issue stock, Chief Executive Officer Brian T. Moynihan, 51, said last week. Capital surcharges on the largest banks may crimp lending and drive off investors from financial firms, he said.

China Construction Bank had annual profit growth of 33 percent since 2007 and is forecast to increase net income by 23 percent this year, according to analysts surveyed by Bloomberg.

Bank of America was the second-biggest shareholder in CCB at year-end, trailing only the Chinese government's 59 percent stake in its Hong Kong shares, according to Bloomberg data.

Temasek Holdings Pte is the third-largest investor with a 7 percent stake. CCB has 240.4 billion shares outstanding in Hong Kong and 9.6 billion yuan-denominated shares listed in Shanghai.

The shares of Bank of America have dropped 21 percent this year, the worst performance in the 24-company KBW Bank Index, as housing-related costs weighed on results.

"People are focused on Bank of America getting beyond its legacy issues, and this happens to be a nice chunk of gold they have that can help them get there," said Jonathan Hatcher, a credit strategist at Jefferies & Co in New York.

Potential buyers of the CCB stake may include sovereign wealth funds, particularly if the bank needs to sell all its holdings, said Charles W. Peabody, an analyst at Portales Partners LLC with a "buy" rating on Bank of America.

Bloomberg News