Bank of America Forced to Sell its Chinese Holdings

Photo Credit: Bloomberg

To meet the reserve guidelines of the US Treasury, Bank of America announced the sale of 13.5 billion shares of China Construction Bank after the bank’s stress tests revealed it would need to raise more money.  Bank of America sold 6% of the company to a group of Asian investors for $7.3 billion.

Unwinding its Holdings

Forced to focus first on its US holdings, Bank of America sold 6% of China Construction Bank, but still holds roughly 11% of the company.  Analysts had been expecting that Bank of America would complete the sale as the lockup period on its holdings expired in early May.  The company had signed an agreement that prohibited the sale of the stock within an imposed timeline and now has the ability to sell the remaining shares whenever it pleases.  The sale to investors values its remaining holdings at nearly $14 billion; however, it is not expected that Bank of America will sell any additional stock at this time.

Finding Buyers is an Easy Task

The stake was sold to a variety of buyers, including China Life Insurance, BOCI Asia, and an undisclosed investment bank that operates within China.  BOCI represented Bank of China in the sale as an affiliate to the core business.

Future Sales out of China

Bank of America is expected to sell a variety of other foreign holdings, including a Columbian banking arm which manages money on behalf of investors, and its First Republic Bank unit, which was sold to the bank as part of its merger with Merrill Lynch.  Bank of America expects that it can raise as much as $10 billion from the sale of the two mentioned businesses.  It also plans to raise as much as $17 billion from the sale of common stock, which investors have been expecting as part of its plan to raise money through dilution.  Bank of America ate up most of its cash reserves to purchase Merrill Lynch, a decision that has proved to be profitable, yet straining on the bank’s already low cash reserves.