By Kirsten Valle Pittman, The Charlotte Observer, N.C.
Nov. 14--In its latest step to build capital amid continued questions from regulators and investors, Bank of America Corp. has agreed to sell most of its remaining shares in China Construction Bank Corp., the bank said Monday.
The Charlotte-based lender, the nation's second-largest by assets, said it will sell 10.4 billion common shares through private transactions with a group of investors -- a deal expected to yield an after-tax gain of about $1.8 billion.
The sale will leave Bank of America with a 1 percent stake in CCB, one of China's biggest banks. It's part of chief executive Brian Moynihan's ongoing strategy to shed noncore assets to improve efficiency and boost capital in the face of new international standards.
Monday's announcement came a few months after Bank of America dumped about half its stake in the company.
"Our decision to sell the bulk of our remaining shares in China Construction Bank is consistent with our stated objective of continuing to build a strong balance sheet," Bank of America's chief financial officer, Bruce Thompson, said in a statement.
Bank of America shares closed at $6.05 Monday, down about 2.6 percent as persistent worries about the eurozone crisis drove down financial stocks and the broader markets.
The bank first invested in CCB in 2005 under then-CEO Ken Lewis, spending $3 billion in the hope China's rapid growth would lead to big returns. It added to its holdings in 2008, ultimately owning 44.7 billion shares, or about 19 percent of the Chinese lender's stock.
The investment proved profitable: Bank of America sold CCB shares twice in 2009 for pretax gains of $2.8 billion and $7.3 billion. In the first six months of 2011, the bank reaped dividend payments of $837 million from CCB, up from $535 million the same period in 2010.
And in August, Bank of America confirmed it was selling 13.1 billion shares for a $3.6 billion pretax gain, reducing its ownership to about 5 percent. That deal helped return the struggling bank to profitability in the third quarter.
Analysts said the latest sale isn't surprising, given the continued pressure to raise capital, the recent decline in Chinese bank valuations and the fact that CCB isn't an essential asset.
"It's a necessary move," said Gary Townsend of Hill-Townsend Capital LLC, a Maryland firm that invests in banks. "It's not a core market for them whatsoever. It gives them a toe-hold in China, but their focus has to be on the U.S. market and wealth management."
Still, the sale of a profitable asset also reflects the stress the bank remains under: "If there were no pressure, they would be more inclined to hold onto it," Townsend said.
The sale of most of Bank of America's remaining CCB shares will generate about $2.9 billion in so-called Tier I common capital. The rest of the bank's shares are under sales restrictions until August 2013.
The bank also has a strategic partnership with CCB that allows the banks' customers free access to both banks' ATMs, for instance. Bank of America has also advised CCB on governance, risk management, credit cards and other areas.
That strategic assistance agreement with CCB remains in place, the bank said Monday.
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