Bank of America Corp. agreed to sell about half its stake in China Construction Bank Corp. for a $3.3 billion gain as the biggest U.S. 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 Monday in a statement, without identifying the buyers. It’s keeping a 5 percent 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 bank, the largest in the U.S. by assets, has slid 37 percent this year in New York trading amid investor concern that it may need to issue stock as mortgage-related losses deplete capital.
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.
The stake is being sold at a discount of about 11 percent, based on CCB’s closing price Monday in Hong Kong. It has returned 77 percent since the shares were acquired in 2008, according to Jerry Dubrowski, a Bank of America spokesman.
Bank of America climbed 8.1 percent to $8.39 on the New York Stock Exchange, leading the 4.5 percent advance of the 24-company KBW Bank Index.
The cost to protect debt issued by the firm fell for a fourth straight day, dropping 38 basis points to 295 basis points as of 4:01 p.m. Monday in New York, according to data provider CMA. JPMorgan Chase & Co. data show the contracts have fallen from a record 445 basis points last week, after Warren Buffett’s Berkshire Hathaway Inc. agreed to invest $5 billion in Bank of America. A basis point is 0.01 percentage point.
Paul Miller, an analyst at FBR Capital Markets, said he’s keeping his rating of “market perform” on Bank of America shares as the sale doesn’t alleviate balance sheet “problems” mainly stemming from the 2008 purchase of subprime lender Countrywide Financial Corp.
“It all goes back to the Countrywide acquisition,” Miller said Monday in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “I don’t think the bank itself has any more clarity on what those overall costs are going to be.”
CCB said earlier this month that 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 a regulatory filing. The stake equaled about 10.6 percent of CCB’s Hong Kong-listed shares, according to data compiled 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, Bloomberg data show. Temasek Holdings Pte was 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.
Temasek, Singapore’s state-owned investment company, was among firms that agreed to buy CCB shares from Bank of America, Reuters reported, citing two people it didn’t identify.
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 capital this month through measures including its sales of non-core assets, Thompson said. The transactions also have pared the firm’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 percent CCB stake. The U.S. lender later exercised an option to buy an additional 11 percent, 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.
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