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BofA might sell part of CCB stake

By Yang Zhen (China Daily)
Updated: 2009-05-07 08:04

Left: A man delivers flowers to a Bank of America Corp branch in Charlotte, North Carolina. Right: A woman walks past a China Construction Bank Corp branch in Shanghai. [Bloomberg News]

Bank of America (BofA) could soon sell shares in China's second-largest bank as part of a move that could likely fetch about a quarter of the $34 billion in additional capital it is reported to need after a US government stress test.

BofA is allowed to sell 13.5 billion shares in China Construction Bank (CCB) - a 6 percent stake worth around $8.3 billion - when a lock-up period ends today.

CCB Shares fell as much as 4.4 percent in early trading yesterday in Hong Kong due to fears of a possible BofA stake sale and ended at HK$4.75, down 0.42 percent.

BofA had reportedly been preparing for an immediate share sale as soon as the lockup period expired.

Related readings:  BofA profits beat Street estimates  More loans but fewer profits for top banks  Banks hit by bad loan provisions  China Construction Bank net profit declines 18.2% in Q1

An official at CCB's public relations office said the bank hadn't received any notice regarding the US bank's plan to sell part of its holdings. "Share sale following the expiration of a lockup period is a normal act by strategic investors. The long-term strategic cooperation between the two banks will not change," said the CCB official.

BofA had said it intends to remain a long-term and strategic shareholder of CCB, the Financial Times reported.

Western financial institutions have been selling their stakes in Chinese banks to replenish capital that dried up following the global credit crisis. BofA has been one of the hardest hit banks in the US. The bank has already raised $2.8 billion selling CCB shares at a 12 percent discount in January.

Allianz SE and American Express sold a combined $1.9 billion of shares in Industrial and Commercial Bank of China at a 4 percent discount last week. Royal Bank of Scotland and UBS both sold their entire stakes in Bank of China in January.

However, the decision by foreign strategic investors to sell or hold their stakes mostly depends on their own performance, analysts said.

Goldman Sachs, the US investment bank that posted a 12.9 percent 2009 first quarter net profit growth, agreed in March to keep 80 percent of its almost 16.5 billion shares in ICBC for at least another year.

CCB's Hong Kong listed H-shares have gained 11.5 percent this year. The bank said in April that its 2009 first quarter net profit fell 18.3 percent from a year earlier as narrowing interest margins hurt profitability.

Reuters contributed to this story

US bank may need $34b more

Bank of America (BofA) has been deemed to need as much as $34 billion in additional capital, according to the results of a government stress test, a source familiar with the results told Reuters late on Tuesday.

BofA spokesman Scott Silvestri declined comment.

A possible $34 billion capital shortfall is certain to increase pressure on CEO Kenneth Lewis, who was last week ousted by shareholders as chairman of the biggest US bank.

That ouster could lay the groundwork for Lewis's eventual departure from the company he worked at for 40 years, including the last eight as chief executive.

It may also unnerve investors who had hoped the results of the stress tests on BofA and 18 other banks might show the industry was in less dire straits than had been feared. Shares of major US banks have nearly doubled since bottoming out in early March.

US equity market futures extended losses on Wednesday and the yen gained following the news.

About 10 of the 19 banks being stress-tested are expected to need more capital buffers, a person familiar with the official talks has said. The person was not authorized to speak because the results are not public.

Many analysts have speculated that other banking companies that may need more capital, either because they do not have enough tangible common equity or are experiencing rising loan losses, include Citigroup Inc, Wells Fargo & Co, Fifth Third Bancorp, GMAC LLC, KeyCorp, Regions Financial Corp and SunTrust Banks Inc.

The government has spent three months conducting stress tests on the 19 largest US banks to determine their revenue, losses and capital needs, should economic conditions deteriorate even further than many economists expect.

Officials plan to release results of the tests late today, and are expected to reveal both aggregate and individual banks' figures.

BofA has been at the top of the list of those believed to need more capital, as it faces significant credit losses and a controversial takeover of Merrill Lynch & Co, which closed on Jan 1.

The $34 billion figure more than triples previously published reports of BofA's capital needs.

Lewis had told analysts on an April 20 conference call that "we absolutely don't think we need additional capital", but added that credit conditions remained weak, especially in credit cards.

Reuters