Monday, August 29, 2011

Bank of America Pulling out Half of Stake in China Construction Bank

They are doing this to raise capital due to litigation over bad mortgages and other souring financial deals and it cuts their holding from 10% to 5%. But circumstances forcing their timing is probably going to be in their favor. This was the first opportunity they had to sell the H-shares they bought using a call option in 2008. Although, it's not clear why the timing mattered, unless the original stake from 2005 was also encumbered in some way.

Bank of America sells half of its stake in China Construction Bank for $8.3B to raise capital
The nation’s largest bank by assets is selling roughly 13.1 billion shares in the Chinese bank for $8.3 billion to a group of investors it did not name. The sale should generate an after-tax gain of $3.3 billion, and should close by the end of next month.

They acquired a 9% stake in 2005 for $3 billion and another ~2% stake in 2008 for just under $2 billion. That's a pretty profit, unless I'm missing something here.

More at Wikipedia
On or about 5 June 2008, Bank of America purchased 6 billion H-shares for approximately HK$2.42 per share using call options under a formula in the initial acquisition agreement. Bank of America now holds about 25.1 billion H-shares, representing about 10.75% of CCB's issued shares. Bank of America may not sell the 6 billion shares that it purchased from Huijin using the call option before 29 August 2011 without prior consent of CCB. Bank of America still has the option to purchase additional shares.[8]
In May 2009, speculation was raised that $7.3bn worth of CCB shares had been sold by BoA, to help bolster capital during stress testing.

1 comment:

jesse said...

Michael Pettis on China:

A very interesting read.