Big Asset Sale Near at Bank of America
By NELSON D. SCHWARTZ
Published: August 26, 2011
Bank of America is completing plans to sell more than half of its stake in the China Construction Bank in a deal that could raise nearly $10 billion, just a day after Warren E. Buffett invested $5 billion in the beleaguered American financial giant.
A consortium of sovereign wealth funds in Asia and the Middle East as well as several private equity firms are in negotiations with bankers and could close a deal by early next week, two officials briefed on the talks said Friday. While Bank of America plans to sell at least half of its 10 percent stake in the Chinese bank, it is willing to unload much more than that for the right price, according to the officials, who spoke on the condition that they not be named because the sale was still being negotiated.
The sale would improve Bank of America’s capital position under international Basel III regulations. Bank of America’s stock fell by nearly 30 percent earlier this month on investor fears that it would have to sell more shares to raise more capital amid huge losses on soured mortgage securities and a weakening economy.
Mr. Buffett’s investment — and the likely sale of the Chinese stake — have helped allay those worries while reinforcing investor confidence in management, and Bank of America shares rose 1.4 percent to $7.76 a share on Friday. The stock jumped more than 9 percent Thursday on news of Mr. Buffett’s move.
A Bank of America spokesman declined to comment.
But if a deal is completed soon, it would also defy speculation that deep-pocketed buyers would be hard to find at a time of intense volatility in the markets and uncertainty about the global economy.
The sale by Bank of America has also been complicated by the fact that other institutions have been selling shares in China Construction and other Chinese banks. In July, Singapore’s state investment fund, Temasek Holdings, sold more than $1 billion worth of shares in the China Construction Bank.
Unloading the Chinese shares represents one more step in reversing the legacy of Bank of America’s former chief executive, Kenneth D. Lewis, who made Bank of America the nation’s largest bank through a long series of acquisitions, some more profitable than others. One in particular, the 2008 purchase of Countrywide Financial, the subprime lender, has been disastrous, costing the bank more than $30 billion.
The investment in the China Construction Bank, which began in 2005, has been much more successful. In its latest filings with the Securities and Exchange Commission, Bank of America estimated the entire stake was worth almost $19.6 billion, about $10 billion more than it paid. Bank of America owns 25.6 billion shares of China Construction, of which 23.6 billion are covered by a lock-up preventing sales that expires on Monday. A lock-up on the remaining 2 billion shares expires next August.
For Bank of America, unloading the China Construction stake is also part of a broader effort by its chief executive, Brian T. Moynihan, to sell off noncore businesses, strengthen the bank’s capital position and focus on the company’s retail and investment banking operations. Since the start of 2010, Mr. Moynihan has sold more than $30 billion worth of assets, most recently unloading the bank’s Canadian credit card business and a portfolio of commercial real estate.
The potential deal was first reported by CNBC.
While Mr. Buffett’s move and the potential sale of China Construction have been greeted positively by investors, the overhang from Countrywide still looms large.
In June, Bank of America reached an $8.5 billion settlement with 22 major holders of soured mortgage securities to help cap future repurchase claims. That deal was set to be reviewed by a state court judge in November, but a group of other investors who oppose the settlement filed a notice Friday to move the case to federal court in Manhattan.
If that effort were to ultimately succeed, it could delay resolution of the settlement, but legal experts said permanently moving the venue would not be easy. The trustee for the 22 investors, Bank of New York Mellon, is expected to ask next week that the case be kept in state court. The state court had imposed a deadline of Tuesday for any objections to the agreement.
By NELSON D. SCHWARTZ
Published: August 26, 2011
Bank of America is completing plans to sell more than half of its stake in the China Construction Bank in a deal that could raise nearly $10 billion, just a day after Warren E. Buffett invested $5 billion in the beleaguered American financial giant.
A consortium of sovereign wealth funds in Asia and the Middle East as well as several private equity firms are in negotiations with bankers and could close a deal by early next week, two officials briefed on the talks said Friday. While Bank of America plans to sell at least half of its 10 percent stake in the Chinese bank, it is willing to unload much more than that for the right price, according to the officials, who spoke on the condition that they not be named because the sale was still being negotiated.
The sale would improve Bank of America’s capital position under international Basel III regulations. Bank of America’s stock fell by nearly 30 percent earlier this month on investor fears that it would have to sell more shares to raise more capital amid huge losses on soured mortgage securities and a weakening economy.
Mr. Buffett’s investment — and the likely sale of the Chinese stake — have helped allay those worries while reinforcing investor confidence in management, and Bank of America shares rose 1.4 percent to $7.76 a share on Friday. The stock jumped more than 9 percent Thursday on news of Mr. Buffett’s move.
A Bank of America spokesman declined to comment.
But if a deal is completed soon, it would also defy speculation that deep-pocketed buyers would be hard to find at a time of intense volatility in the markets and uncertainty about the global economy.
The sale by Bank of America has also been complicated by the fact that other institutions have been selling shares in China Construction and other Chinese banks. In July, Singapore’s state investment fund, Temasek Holdings, sold more than $1 billion worth of shares in the China Construction Bank.
Unloading the Chinese shares represents one more step in reversing the legacy of Bank of America’s former chief executive, Kenneth D. Lewis, who made Bank of America the nation’s largest bank through a long series of acquisitions, some more profitable than others. One in particular, the 2008 purchase of Countrywide Financial, the subprime lender, has been disastrous, costing the bank more than $30 billion.
The investment in the China Construction Bank, which began in 2005, has been much more successful. In its latest filings with the Securities and Exchange Commission, Bank of America estimated the entire stake was worth almost $19.6 billion, about $10 billion more than it paid. Bank of America owns 25.6 billion shares of China Construction, of which 23.6 billion are covered by a lock-up preventing sales that expires on Monday. A lock-up on the remaining 2 billion shares expires next August.
For Bank of America, unloading the China Construction stake is also part of a broader effort by its chief executive, Brian T. Moynihan, to sell off noncore businesses, strengthen the bank’s capital position and focus on the company’s retail and investment banking operations. Since the start of 2010, Mr. Moynihan has sold more than $30 billion worth of assets, most recently unloading the bank’s Canadian credit card business and a portfolio of commercial real estate.
The potential deal was first reported by CNBC.
While Mr. Buffett’s move and the potential sale of China Construction have been greeted positively by investors, the overhang from Countrywide still looms large.
In June, Bank of America reached an $8.5 billion settlement with 22 major holders of soured mortgage securities to help cap future repurchase claims. That deal was set to be reviewed by a state court judge in November, but a group of other investors who oppose the settlement filed a notice Friday to move the case to federal court in Manhattan.
If that effort were to ultimately succeed, it could delay resolution of the settlement, but legal experts said permanently moving the venue would not be easy. The trustee for the 22 investors, Bank of New York Mellon, is expected to ask next week that the case be kept in state court. The state court had imposed a deadline of Tuesday for any objections to the agreement.