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BofA expects $1.8-billion gain from selling stake in Chinese bank

November 15, 2011
  • Bank of America is under pressure to build capital to cover mortgage-related assets and to meet new international standards. Above, a bank branch in New York.
Bank of America is under pressure to build capital to cover mortgage-related… (Emmanuel Dunand, AFP/Getty…)

Bank of America Corp. plans to sell most of its remaining stake in China Construction Bank for $6.6 billion cash, in the ailing bank's latest move to boost capital levels.

In the last three months, Bank of America has agreed to sell nearly $15 billion of CCB shares, a holding acquired in 2005 to cement Bank of America's strategic relationship with the Chinese bank and give it a stake in the fast-growing Asian economy.

Now Bank of America is under pressure to build capital to cover mortgage-related assets and to meet new international standards.

The bank probably would have preferred to hold on to the shares, said Gary Townsend, chief executive of investment firm Hill-Townsend Capital in Maryland. But BofA needs to focus on its main businesses and is trying to build capital without issuing more common stock, he said.

"This is still a company under significant stress," Townsend said. "They have a great deal to prove, so they are raising more capital."

Bank of America said Monday that the sale was expected to generate a gain of about $1.8 billion after taxes.

The income from the private sale will allow the bank to realize deferred tax assets, boosting a measure of capital known as Tier 1 common capital by about $2.9 billion.

Bank of America and other U.S. financial firms began taking stakes in Chinese banks in the last decade as a way to enter a market that was difficult to penetrate on their own. But as U.S. banks have struggled in recent years they have sold the shares for gains.

Last week, Goldman Sachs Group sold $1.1 billion worth of shares in Industrial & Commercial Bank of China Ltd. Morgan Stanley agreed last year to sell its 34.3% stake in China International Capital Corp., China's top investment bank.

In August, Bank of America agreed to sell $8.3 billion of CCB shares to a group of investors. After those sales, the bank still owned 12.5 billion CCB shares, or about a 5% stake.

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