Bank of America Corp agreed to sell about half its stake in China Construction Bank Corp for a $3.3-billion gain as the largest US lender bolsters capital ahead of new international standards.
A group of investors will buy 13.1 billion shares in a private transaction closing this quarter that will generate $8.3 billion in cash proceeds, Charlotte, North Carolina-based Bank of America said today in a statement, without identifying buyers. It’s keeping a five per cent stake in CCB, and the companies are discussing an expansion of strategic ties.
“Our partnership with China Construction Bank has been mutually beneficial,” Bank of America Chief Executive Officer Brian T Moynihan said in the statement.
Moynihan, 51, has been selling businesses and assets as the firm seeks to comply with international capital standards set by the Basel Committee on Banking Supervision. The company, which ranks as the largest US bank by assets, has slid 39 per cent this year in New York trading amid investor concern that it may need to issue stock to offset capital depleted from mortgage-related losses.
Selling the shares helps 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 CCB deal will generate about $3.5 billion in additional Tier 1 common capital and reduce risk-weighted assets by $7.3 billion under Basel I, Chief Financial Officer Bruce Thompson said in the statement.
Cooperation
Bank of America’s shares climbed 5.3 per cent to $8.17 at 10.34 am in New York Stock Exchange composite trading. It led the 3.1 per cent advance of the 24-company KBW Bank Index.
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CCB said in August it was in talks to extend a strategic cooperation agreement allowing the firms to work together on retail and corporate operations, as well as wealth management and investment banking.
Bank of America, which began investing in CCB before the Chinese bank’s 2005 initial public offering, owned 25.6 billion shares at the end of June, the firm said in an August filing. The stake equalled about 10.6 per cent of CCB’s Hong Kong-listed shares, according to Bloomberg data.
Bank of America was the second-biggest shareholder in CCB at year-end, trailing only the Chinese government’s 59 per cent stake in its Hong Kong shares, according to Bloomberg data.
Temasek Holdings Pte was the third-largest investor with a seven per cent stake. CCB has 240.4 billion shares outstanding in Hong Kong and 9.6 billion yuan-denominated shares listed in Shanghai.
Previous Sales
Bank of America has been selling assets including its Canadian credit-card 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 common stock, Moynihan has said.
Bank of America will raise about $5.8 billion in fresh capital this month alone through measures including its sales of non-core assets, Thompson said. The transactions have also reduced the company’s risk-weighted assets under Basel I by about $16.1 billion, he said.
Under former CEO Kenneth D Lewis, Bank of America paid $3 billion for a 9.9 per cent CCB stake. The US lender later exercised an option to buy an additional 11 per cent, paying $9.2 billion.
Bank of America sold its initial stake in CCB in May 2009, reaping a pretax gain of $7.3 billion, as loan losses mounted amid the recession. Last year, the bank sold rights to buy 1.79 billion CCB shares to Temasek, Singapore’s state investment company.