Bank of America Corp is selling about half of its stake in China Construction Bank for $8.3 billion, in its latest efforts to shed assets and boost capital, Economic Times reported.
A group of investors is buying 13.1 billion CCB shares from Bank of America, with the deal expected to close in third quarter. The US bank declined to name the investors but two sources said Singapore state fund Temasek was among the buyers, the reported.
In order to meet new global rules, Bank of America needs to boost capital by some $50 billion in the coming years, as per multiple analyst estimates.
China Construction Bank is the second-largest bank in the world by market value, and Bank of America’s ties with the Chinese Bank are seen as an importance source of future growth.
Bank of America’s willingness to sell part of its CCB investment shows how far it must go to meet new capital requirements, analysts said. “Bank of America’s decision to sell that stake is wrong strategically in the long-run, but they need money,” said Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster.
Bank of America said it can raise the money through earnings and selling off assets, but a number of investors have expressed concern that the bank will need to issue more common shares.
In the deal with China Construction Bank, Bank of America sold each share for HK $4.93, an 11% discount to the Chinese bank’s most recent closing price of HK$5.55.
Bank of America will record a $3.3 billion gain in the third quarter as a result of the sale, and a $3.5 billion increase to its core capital under present rules.
The sale will also generate an $8.3 billion gain for Bank of America. The bank will also have to hold less capital against the shares of China Construction Bank, because it will now own about 5% of the holdings, less than the 10% level that triggers higher capital requirements.
Bank of America paid $3 billion for a 9.9 % stake in CCB, the world's No. 2 bank by market value, before the Chinese lender's IPO in 2005.
Bank of America Corporation is an American multinational banking and financial services corporation, the largest holding company in US, by assets and second largest bank by market capitalization.
