|The largest US bank in terms of deposits, BoA has struggled to recover from the 2008 financial meltdown [EPA]|
Bank of America (BoA) is to sell about half of its 10 per cent stake in China Construction Bank for about $8.3bn in cash, its chief executive has said.
The sale will help the troubled bank strengthen its capital base and implement the tougher Basel III standards imposed by global regulators, said Brian Moynihan in a statement on Monday.
The news comes as BOA grapples with a steep decline in its share price in recent weeks. The bank has yet to name who is acquiring its shares in CCB, describing the buyers only as “a group of investors”.
“Our partnership with China Construction Bank has been mutually beneficial,” Moynihan said.
BoA’s shares surged on the news, closing 8.1 per cent higher, although they are still down more than 13 per cent over the past month, and more than 37 per cent since the beginning of the year.
Media reports have identified possible buyers as Asian and Middle East sovereign wealth funds and US private equity firms Blackstone and KKR.
Singapore’s state investment company, Temasek Holdings, had been considering buying part of the stake, the Wall Street Journal reported, citing anonymous sources.
Under the terms of the deal, which is expected to close in the third quarter of 2011, BoA will sell 13.1 billion shares in CCB. It will book an after-tax gain of $3.3bn on its sale of the shares, which it bought in 2005.
The largest US bank in terms of deposits, BoA has struggled to recover from the 2008 financial meltdown.
It posted a $9.1bn loss for the second quarter, mostly caused by a huge $8.5bn settlement to resolve claims stemming from its issuance of mortgage-backed securities that went sour during the crisis.
Until Monday, BOA had refused to comment on speculation that it was considering a sale of its stake in Beijing-based CCB, which is majority-owned by the Chinese government.
Investors have been dumping the US bank’s stock amid fears that its legal woes and the sluggish US economy would prevent it from raising enough capital to meet the Basel III standards imposed after the financial crisis.
The bank got a major boost on Thursday when billionaire Warren Buffett said he would invest $5bn in BoA and strongly endorsed the bank’s embattled management team.
The sale of CCB shares will further improve BoA’s capital ratios, the bank said, helping to allay concerns that it is undercapitalised and not moving quickly enough to meet the Basel III rules.
Earlier this month, BoA said it would sell its $8.6bn Canadian credit card portfolio and would exit its credit card businesses in Britain and Ireland, as part of a strategy of unloading non-core assets.
Through such sales, in August BoA will raise its Tier 1 common capital by $5.8bn and reduce its its risk-weighted assets, as defined by Basel I rules, by $16.1bn, the bank said in Monday’s statement.