BofA rises as firm seeks $1.5B in Construction Bank exit

NEW YORK – Bank of America Corp. rose in New York trading after setting a $1.5 billion goal for its sale of China Construction Bank Corp. shares, a deal that will end an eight-year investment in the Chinese lender.
Bank of America climbed 1.6 percent to $14.34 as of 10 a.m. The lender is offering its remaining 2 billion Construction Bank shares for HK$5.63 to HK$5.81 each, according to terms for the deal obtained by Bloomberg News. That’s as much as 5.1 percent below the closing price in Hong Kong for Beijing-based CCB, ranked second by market value among Chinese banks.
Goldman Sachs Group Inc., HSBC Holdings PLC and Citigroup Inc. also have sold shares in Chinese financial institutions as new international rules make it more expensive to hold minority stakes in lenders. Bank of America reaped at least $15 billion in sales proceeds and dividends before today, according to Bloomberg calculations based on its filings.
“Stake sales are a prudent move,” Sandy Mehta, CEO of Value Investment Principals Ltd. in Hong Kong, said via email. BofA’s sale continues the trend of “Western banks selling down stakes and raising capital wherever and whenever they can,” he wrote.
Mark Tsang, a spokesman for Bank of America in Hong Kong, declined to comment. The second-biggest U.S. lender, based in Charlotte, N.C., sold Construction Bank shares four times before the latest transaction. It paid $3 billion for a 9.9 percent stake in Construction Bank before its initial public offering in 2005, and later exercised an option to buy another 11 percent for about $9.2 billion.

New rules

Not including Bank of America’s CCB sale, foreign institutions have raised at least $14 billion from divesting shares in Chinese financial firms since the start of 2012, according to data compiled by Bloomberg.
New rules set by the Basel Committee on Banking Supervision require capital deductions for holding minority investments in other financial institutions.

U.S. regulators are also pushing for bigger cushions against potential losses, proposing in July that lenders’ leverage ratios, or capital as a percentage of total assets, be pegged at 5 percent for holding companies, 2 percentage points more than the international minimum.
“One of the reasons they’re selling is to get regulatory relief,” Charles Peabody, an analyst at Portales Partners LLC, said before the share sale began. Bank of America’s leverage ratio was between 4.9 percent and 5 percent, the company said in July.

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Chinese investments

Goldman Sachs sold its remaining stake in Industrial & Commercial Bank of China Ltd. in May for $1.1 billion, capping a $2.58 billion, seven-year investment in the nation’s largest lender by garnering about $12 billion in sales proceeds and dividends. Citigroup sold its stake in Shanghai Pudong Development Bank in March 2012, nine years after buying it, for an after-tax gain of $349 million. In February, HSBC completed a $9.4 billion sale of shares in Ping An Insurance (Group) Co.
Global financial firms including Temasek Holdings Pte, Singapore’s state-owned investment company, invested $33 billion in Chinese lenders from 2001 to 2009, according to the country’s banking regulator. They still own at least $30 billion of shares in local banks, data compiled by Bloomberg show.
Temasek, which isn’t subject to the same capital requirements as European and U.S. firms, held 7.15 percent of Construction Bank’s outstanding shares as of March 31 after buying 3.77 billion shares from Bank of America on Nov. 11, 2011.

Largest shareholder

The Singaporean institution has accumulated about $20 billion of holdings in Construction Bank, Industrial & Commercial Bank and Bank of China Ltd. over the past two years, according to data compiled by Bloomberg.
China’s government is the largest shareholder in the nation’s four biggest banks, owning an average 68.8 percent of their stock at the end of March, according to the lenders’ earnings statements. Some 57.22 percent of Construction Bank’s shares were state-owned, according to its first-quarter profit statement released April 26.
A gauge of financial stocks in the CSI 300 Index has fallen 7.9 percent this year, compared with the broader gauge’s 6.7 percent drop, as a slowing economy hurts earnings growth. Chinese bank profits may decline in the next three years as a government crackdown on industrial overcapacity curbs lending and sours loans, Josh Klaczek, an analyst at JPMorgan Securities (Asia Pacific) Ltd., said on July 31.
The stock slump has dragged valuations of Construction Bank and its closest rivals close to record lows. Construction Bank, which has lost 4.7 percent this year in Hong Kong, is valued at about 5.6 times estimated 2013 earnings, down from 14 times in November 2009, data compiled by Bloomberg show.
The lender had a 9.7 percent increase in second-quarter net income, based on figures announced Aug. 25, the slowest growth in five quarters as bad-loan charges rose amid the nation’s economic slowdown.

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