Bank of America is considering the sale of an $8bn stake in a leading Chinese bank within days in a move that would relieve some of the pressure on its battered balance sheet.
BofA, which is undergoing a crucial US government “stress test”, is free to divest about a third of its 16.7 per cent stake in China Construction Bank on Thursday following the expiration of a lock-in period.
The possibility this week of a lucrative share sale comes as BofA is in talks with US government officials over how much new capital it will be required to raise. BofA received pledges of $25bn in support in October as part of the US government’s plan to restore stability to the banking system.
In December, the US government pressed Ken Lewis, BofA chief executive, to complete the acquisition of Merrill Lynch in spite of Merrill’s worsening financial condition. To help make the deal palatable to Mr Lewis, US regulators pledged an
additional $20bn in capital.
People familiar with the matter said BofA was weighing up the merits of an immediate share sale against holding on to the stake for a few weeks. BofA said the bank “intends to remain a long-term shareholder and
strategic shareholder with China Construction Bank”.
CCB’s Hong Kong-listed shares have climbed more than 12 per cent in the past week, outperforming a broader stock market rally and leaving the stake worth about $8.3bn at last night’s
Western financial groups amassed stakes in Chinese banks in 2005 and 2006 as Beijing sought expertise to help turn round its moribund banking system. However, many strategic investors, including UBS and Royal Bank of Scotland, sold their stakes this year as soon as lock-ins expired.
People familiar with the situation said that BofA would gain an extra dividend payment of $200m if it held on to the stock until at least June 17. However, dealmakers said that BofA’s decision would ultimately be driven by events in Washington.
“What happens to the stake will depend on what demands the politicians have for BofA in terms of fresh capital,” said one person familiar with the situation. “CCB’s share price could also rise in the coming weeks and that thought could convince them to wait.”
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