07 January 2009

Bank of America Eats a Bran Muffin, Finally Unloads Some Shares of China Construction Bank

Following up on my recent post on China's alleged interference with Bank of America's sale of some of its China Construction Bank holdings, Reuters reported today that BoA sold nearly $3B in shares (choice bits in bold):

The Bank of America raised $2.83 billion from selling part of its holding in China Construction Bank, and Hong Kong's richest tycoon followed by selling a $500 million stake in its rival, Bank of China.

Shares in China's big banks skidded on Wednesday after Bank of America's early-morning sale, with investors expecting further sell-downs in the face of slowing earnings growth at mainland lenders and the lapse of lock-up provisions on stake holdings.

China's three largest banks attracted big strategic investments from western financial giants at the time of their initial offerings. Some investors, including Royal Bank of Scotland, are under pressure to sell as the global financial crisis ravages the banking industry.

Bank of America sold more than 5.62 billion Construction Bank shares at 3.92 Hong Kong dollars each, according to a term sheet obtained by Reuters, in a deal that had been widely anticipated by the market.

Bank of America realizes a profit of about $1.13 billion on the stake sale, based on Construction Bank's initial offering price. It sold the stake at a 12 percent discount to the stock's Tuesday close.
On the 18th of December, the FT reported that shares of China Construction Bank were offered by Bank of America at a 15% discount to the then closing price of HK$4.63, or HK$3.92. Yesterday, China Construction Bank shares had returned to trading at mid-December levels before tumbling towards $4/share.

I guess BoA decided it was worth pissing off the Chinese to bolster its books. Or perhaps by delaying the sale for three weeks, the Chinese government broadcast its message loud and clear.

Western banks may continue unloading their Chinese bank holdings throughout the year to raise much-needed cash. We'll see if they heed China's warning, or follow BoA's lead and liquidate:

Citigroup said Bank of China might see further stake sales this year by Royal Bank of Scotland, which holds 8.3 percent, and Singapore's state investment agency, Temasek Holdings, which owns 4.1 percent. Lockups on those stakes lapsed last month, it said.

Industrial and Commercial Bank of China could also come under sale pressure this year.

Goldman Sachs, Allianz and American Express Company own a combined 7.3 percent in Industrial and Commercial Bank of China, with lockups that will lapse in April and October, Citigroup said in a note.
Bad news in China is good news for the portfolio. FXP popped more than 15% today from its recent doldrums.

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