Bank of America Corp. may sell part of its $21 billion stake in China Construction Bank Corp. to bolster capital before new international standards take effect, said three people briefed on the plans.
Bank of America, the biggest U.S. lender by assets, may try to retain about half its CCB shares because it intends to remain a strategic investor in the Chinese bank, said two of the people, who declined to be identified because the plans are private. The sale may take place later this year, they said.
Selling the shares could help Bank of America raise capital to comply with tougher minimums that may be imposed by regulators as they try to prevent a repeat of the 2008 financial crisis. The Basel Committee on Banking Supervision is considering plans that may include a surcharge on the largest lenders, people briefed on those talks have said.
“The real issue for Bank of America that will start to engender confidence is some of the big capital-raising transactions planned for the second half of the year, like selling off China Construction Bank,” said Charles W. Peabody, an analyst at Portales Partners LLC. Bank of America may try to sell the whole stake and raise $10 billion in regulatory capital, said Peabody, who has a “buy” recommendation on the company.
Bank of America owned 25.6 billion shares of CCB valued at $21 billion as of March 31, the Charlotte, North Carolina-based lender said in a May regulatory filing. The stake equals about 10.6 percent of CCB, according to Bloomberg data. A lockup period, in which Bank of America is prohibited from selling most of its shares in Beijing-based CCB, expires in August.
“It’s a strategic relationship and it will continue to be one for a long time,” said Larry DiRita, a spokesman for the U.S. bank. Yu Baoyue, a spokesman for CCB, declined to comment.
Bank of America has been selling assets including its Balboa insurance unit, First Republic Bank and BlackRock Inc. to boost capital and focus on core clients. The firm can build capital through earnings and doesn’t need to issue stock, Chief Executive Officer Brian T. Moynihan, 51, said last week. Capital surcharges on the largest banks may crimp lending and drive off investors from financial firms, he said.
China Construction Bank, the world’s second-biggest lender by market value, had annual profit growth of 33 percent since 2007 and is forecast to increase net income by 23 percent this year to 165.9 billion yuan ($25.6 billion), according to analysts surveyed by Bloomberg.
Bank of America was the second-biggest shareholder in CCB at year-end, trailing only the Chinese government’s 59 percent stake, according to Bloomberg data. Temasek Holdings Pte is the third-largest investor with a 7 percent stake.
Investors including Bank of America, Goldman Sachs Group Inc. and Royal Bank of Scotland Plc. have trimmed about $20 billion in holdings in Chinese lenders since 2009. Chinese regulators consider a single foreign holding of at least 5 percent with a lockup period of at least three years a strategic investment.
Bank of America fell 4 cents to $10.64 at 11:07 a.m. in New York Stock Exchange composite trading. The shares dropped 20 percent this year, the worst showing in the 24-company KBW Bank Index.
© Copyright 2016 Bloomberg News. All rights reserved.