M and A
BofA To Offload Bulk Of China Construction Bank Stake
Bank of America is offloading 10.4 billion common shares in China Construction Bank, in a move to strengthen its balance sheet, for an expected after-tax gain of around $1.8 billion.
The transaction, expected to close this month, will leave BofA holding 1 per cent of CCB’s common shares. The shares are being sold through private transactions to a group of investors.
"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," said Bruce Thompson, chief financial officer.
"We expect this action, supplemented by the related realization of deferred tax assets, will generate approximately $2.9 billion in additional Tier 1 common capital and further strengthen our Tier 1 common capital ratio by approximately 24 basis points under Basel I," he continued.
The strategic assistance agreement between the two banks, which includes cooperation in certain business areas, remains in place.
The latest sale agreement comes after Bank of America announced in August that it was selling 13.1 billion common shares in China Construction Bank to a group of private investors, for an estimated gain of around $8.3 billion in cash.
That deal reduced its holding to 5 per cent, and was in response to a proposed Basel III standard placing restrictions on capital that represents ownership in financial institutions to under 10 per cent, the bank said at the time.
It also came a few days after Bank of America reached a $5 billion agreement to sell 50,000 shares of Cumulative Perpetual Preferred Stock to Warren Buffett's Berkshire Hathaway in a private offering, giving the bank’s balance sheet a welcome boost of confidence at the time.
The US bank was hit this year by legacy issues surrounding troubled mortgage lender Countrywide, which it bought in 2008. The group recorded a net loss of $8.8 billion for the second quarter 2011, but moved back into the black in the third quarter to report net income of $6.2 billion.
The agreement remains subject to customary closing conditions.