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Bank of America sells shares in China bank for $8.3bn

Bank of America has confirmed it is to sell around half its stake in China Construction Bank (CCB) as America's biggest lender moves to shed assets and boost its capital.



The private transaction is expected to generate approximately $8.3bn in cash. Photo: AFP

By Rachel Cooper

7:43PM BST 29 Aug 2011

At the end of last week there was speculation that Bank of America was close to selling at least half of its $20bn holding in CCB, and yesterday the US lender confirmed it had agreed to sell around 13.1bn CCB shares.

The private transaction with a group of investors is expected to generate approximately $8.3bn in cash proceeds, with an after-tax gain of around $3.3bn. Following the sale, Bank of America will still hold about 5pc of CCB. The lender said it was discussing a potential expansion and extension of its existing strategic ties with the Chinese bank.

"Our partnership with China Construction Bank has been mutually beneficial," said Brian Moynihan, Bank of America's chief executive. Shares in Bank of America have fallen sharply in recent weeks following suggestions that it was short of $50bn to $200bn of capital.

Analysts and investors have raised the question of whether the bank would need to raise outside capital through a stock offering not only to meet new industry rules, but to cope with billions in problem mortgage loans on its books and potential mortgage litigation.

The fears have cut the bank's stock price by a third since the beginning of August, including a 20pc plunge on August 8. However, last week, the shares were given a lift with Warren Buffett buying $5bn of preferred stock, with 700m of warrants that convert into 7pc of the bank's shares. The billionaire investor, who made $4.5bn in profit from a similar move investing in Goldman Sachs at the height of the financial crisis, said he was impressed by Bank of America's "profit–generating" capabilities.

Selling the shares in CCB helps Bank of America comply with international capital standards set by the Basel Committee on Banking Supervision. Bruce Thompson, Bank of America's chief financial offi-cer, said the sale was expected to generate about $3.5bn in additional Tier 1 common capital. "This month alone, through non-core asset sales and other actions, we expect to generate approximately $5.8bn in additional Tier 1 common capital and reduce risk-weighted assets by approximately $16.1bn under Basel I," Mr Thompson said.

Bank of America has been selling assets including First Republic Bank, its Canadian credit card unit and holdings in asset management firm, BlackRock, to boost capital and focus on core clients. Mr Moynihan has said the bank can build capital through earnings and does not need to issue common stock. News of the CCB sale lifted shares in Bank of America by around 5pc to $8.17 yesterday.