Hong Kong: Bank of America could soon sell shares in China’s second-largest bank that could raise about a quarter of the $34 billion in additional capital it is reported to need after a government stress test.
Bank of America is allowed to sell 13.5 billion shares in China Construction Bank - a 6% stake worth around $8.3 billion - when a lock-up period ends on Thursday.
That would draw down BoA’s stake in the Chinese lender to 10.6%, a level CCB has already said is reasonable. Western banks are aware that selling out of Chinese banks is not always well received by Beijing politicians.
CCB shares dipped 1.5% in Hong Kong on Wednesday.
Three Hong Kong-based investment bankers who spoke to Reuters said it is not yet clear how much, if any, of its CCB shares BoA will sell when the lock-up ends. The bankers were not authorised to speak publicly about the matter.
Bank of America intends to remain a long-term shareholder and strategic partner in China Construction Bank,” said BoA spokesman Scott Silvestri.
Raising money by selling the CCB stake would help BoA boost its capital at a critical time for the bank, which has been deemed to need an additional $34 billion in capital after stress tests in the United States, a source familiar with the results told Reuters.
“There has been healthy short selling in CCB shares in recent days so the market is factoring in a very high chance that BOA will sell part of its shares this week,” said Philip Chan, head of research at CAF Securities, the research arm of Agricultural Bank of China.
“With the stress test results also due on 7 May and the market expecting BoA to raise capital there will be pressure on the management to divest some non-core assets,” he said.
BoA is eligible to receive a $165 million CCB dividend if it waits until after 23 June, according to CCB’s last earnings release.
In June 2005, BoA agreed to pay $3 billion for a 9% stake in CCB - a shareholding that later grew to 16.6%. The deal, like other Western banks buying into Chinese lenders, was meant to be a long-term, cross-border partnership.
But the financial crisis has led several Western banks to sell their stakes in Chinese banks to raise much-needed cash.
Shares in CCB have risen more than 12% so far this year, in line with rival ICBC, but underperforming a 39% jump at Bank of China.
Industrial and Commercial Bank of China is the largest bank in the world by market value, while CCB is second.
“BAC (Bank of America) could increase capital through sales of businesses such as FirstRepublic and Columbia and investments such as CCB,” analysts at JP Morgan wrote earlier this week.
Shares in ICBC dropped 5.9% on 27 April, a day before a portion of the strategic foreign holding in the bank was freed for sale. The stock bounced right back after Allianz and American Express sold a part of their stake.