Troubled US financial giant Bank of America said Monday it would sell roughly half of its 10 percent stake in China Construction Bank for about $8.3 billion in cash.

The sale will help Bank of America strengthen its capital base and implement the tougher Basel III standards imposed by global regulators, said the bank, which has suffered a steep decline in its share price in recent weeks.

BoA's shares surged on the news, closing 8.1 percent higher, although they are still down more than 13 percent over the past month and more than 37 percent since the beginning of the year.

"Our partnership with China Construction Bank has been mutually beneficial," BofA chief executive Brian Moynihan said in a statement.

Bank of America did not identify who was acquiring its shares of CCB, describing the buyers only as "a group of investors."

Media reports have identified possible buyers as Asian and Middle East sovereign wealth funds and US private equity firms Blackstone and KKR.

Singapore's state investment company, Temasek Holdings, had been considering buying part of the stake, The Wall Street Journal reported, citing anonymous sources.

Under the terms of the deal, which is expected to close in the third quarter of 2011, BofA will sell 13.1 billion shares of CCB. It will book an after-tax gain of $3.3 billion on its sale of the shares, which it bought in 2005.

The largest US bank in terms of deposits, Bank of America has struggled to recover from the 2008 financial meltdown.

It posted a $9.1 billion loss for the second quarter, mostly caused by a huge $8.5 settlement to resolve claims stemming from its issuance of mortgage-backed securities that went sour during the crisis.

Until Monday, Bank of America had refused to comment on speculation that it was considering a sale of its stake in Beijing-based CCB, which is majority-owned by the Chinese government.

Investors have been dumping the US bank's stock amid fears that its legal woes and the sluggish US economy would prevent it from raising enough capital to meet the Basel III standards imposed after the financial crisis.

The bank got a major boost on Thursday when billionaire Warren Buffett said he would invest $5 billion in BofA and strongly endorsed the bank's embattled management team.

The sale of CCB shares will further improve Bank of America's capital ratios, the bank said, helping to allay concerns that it is undercapitalized and not moving quickly enough to meet the Basel III rules.

Earlier this month, BofA said it would sell its $8.6 billion Canadian credit card portfolio and would exit its credit card businesses in Britain and Ireland, as part of a strategy of unloading non-core assets.

Through such sales, in August BofA will raise its Tier 1 common capital by $5.8 billion and reduce its its risk-weighted assets, as defined by Basel I rules, by $16.1 billion, the bank said in Monday's statement.

Bank of America also said that reducing its stake in CCB to below 10 percent would let it comply with Basel III rules limiting the amount of investments in financial institutions that banks can count towards their Tier 1 capital.

"This has a moderately positive effect," said Dick Bove, a banking industry analyst with Rochdale Securities.

"By selling it, they reduce their risk-weighted assets and at the same time they increase their retained earnings."

The Basel III requirements, which were imposed after the 2008 financial crisis exposed many banks as undercapitalized, have proved to be a headache for Bank of America and other US banks.

Under the rules, which are being implemented in phases from 2013 to 2019, banks need to reduce their debt-to-capital ratios and can no longer count certain kinds of risky assets as their base capital.

Tweet

Related Links Global Trade News