Bank of America is seeking to raise capital to shore up its balance sheet in the wake of the credit crunch by selling shares in China Construction Bank.

The US bank is planning to sell part of its 9 per cent stake in China’s second biggest bank, people familiar with the matter say. However, at the same time, it is seeking to exercise options it holds to buy more shares in the bank at levels that are now well below market rates.

The two-pronged action is aimed at reconciling BofA’s need to offset write-downs on its bloodied balance sheet while still preserving cordial relations with CCB by not selling too many shares.

“They are telling investors that there is a lot of money on the table and they would like to take some off,” said a person familiar with the thinking at BofA.

The move comes as the US bank holds advanced talks to sell its prime brokerage operation that services hedge funds to BNP Paribas.

BofA is sitting on unrealised gains on its holdings that are worth billions. While CCB’s share price has slid in line with the Chinese stock market – 46 per cent below its October peak – the share price is still far higher than the level at which CCB listed in 2005. It has a market capitalisation of about $177bn.

If BofA just dumped its existing holdings on to the market, that would put increased downward pressure on the share price of CCB, which has only a small float.

The US bank is still considering the exact percentage of new shares it would buy, though it is unlikely to exercise its right to increase its holdings to 19 per cent.

It also has not yet determined if it would sell its shares into the open market, or sell its block to a strategic investor or even sell its shares back to the government.

Regulators, as well as CCB itself, is likely to have to sign off on any strategic sale.

These plans are taking shape at a time when BofA is generally retreating from the international stage. “We are called Bank of America for a reason,” said one senior executive of the bank.

The terms of the agreement struck between BofA and CCB oblige the US bank to hold its shares until October. Both BofA and CCB officials speak warmly of the relationship.

BofA’s balance sheet was expected to be in the spotlight again today when first- quarter results are reported.

Wall Street analysts expect it to suffer a mortgage-related writedown and an increase in credit provisions to account for a further deterioration in the consumer lending and credit cards markets.

Analysts polled by Thomson Reuters are forecasting a sharp fall in earnings to about $0.41 per share, more than 60 per cent lower than in the same period a year ago.