BoA may trim stake

It’s in talks to sell part of US$17b stake in China bank

HONG KONG: Bank of America Corp (BoA) has held exploratory talks with the principal investment funds of Kuwait and Qatar about selling part of its US$17bil stake in China Construction Bank, three sources with direct knowledge of the talks told Reuters.

BoA, which owns about 10% of CCB's Hong Kong-listed shares and is scurrying to raise capital for its mortgage-scarred balance sheet, will be contractually free to sell the bank shares after Aug 29.

BoA, the largest US bank by assets, was likely to sell half its stake to shore up its tier-1 capital, one of the sources said. Analysts believe Bank of America needs about US$50bil to meet new capital requirements.

Talks about the Chinese bank had been held with other investors in addition to the Kuwait Investment Authority and the Qatar Investment Authority, the sources said.

If successful, the move to sell the shares to the sovereign wealth funds will alleviate concerns that BoA will be selling the stake in the open market through a block deal.

Shares of CCB rose as much as 4%, bucking a fall in the benchmark Hong Kong share index, as traders cut short positions and bet the huge overhang would now not have to be absorbed on the market.

“The market must be thinking that BoA is going to unload their entire stake to Middle Eastern SWFs without showing anything to the street,” one Hong Kong-based trader said.

Shares of the Chinese bank had fallen some 20%, partly in anticipation of a BoA sale, traders said.

BoA paid US$3bil for a 9.9% stake in CCB, the world's No. 2 bank by market value, before the Chinese lender's initial public offering in 2005. The US bank then exercised an option to buy an extra 11% for US$9.2bil. BoA sold part of its stake in May 2009.

The US bank is now left with 25.6 million shares, including 23.6 million that come out of a lock-up on Aug 29. It is free to sell the remaining shares in 2013.

The US bank was eager to retain about half of the stake as a bet on growth in China, one source said.

It was unclear if any agreement with the sovereign wealth funds or other investors have been cemented. Sources said no talks were being held currently.

BoA, whose shares have fallen 27% in the past week, did not mention the China investment during a widely followed conference call that top executives held on Wednesday with thousands of investors. - Reuters

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