BofA mulls $8 billion CCB stake sale

Posted 05 21 2009 1:25AM

HONG KONG (Reuters) – Bank of America, which may need to raise an additional $34 billion in capital according to a source familiar with the results of a U.S. government stress test, would gain an extra dividend of $200 million if it holds its stake in China Construction Bank until June 17, the Financial Times said on Wednesday.

Bank of America is allowed to sell 13.5 billion shares in CCB, China's second largest bank -- a 6 percent stake worth around $8.3 billion -- when a lock-up period ends on Thursday.

That would draw down BofA's stake in the Chinese lender to 10.6 percent, a level CCB has already said is reasonable. Western banks are aware that selling out of Chinese banks is not always well received by Beijing politicians.

Three Hong Kong-based investment bankers who spoke to Reuters said it is not yet clear how much, if any, of its CCB shares BofA will sell when the lock-up ends. The bankers were not authorized to speak publicly about the matter.

"Bank of America intends to remain a long-term shareholder and strategic partner in China Construction Bank," said BofA spokesman Scott Silvestri.

Raising money by selling the CCB stake would help BofA boost its capital at a critical time for the bank, which has been deemed to need an additional $34 billion in capital after stress tests in the United States.

"There has been healthy short selling in CCB shares in recent days so the market is factoring in a very high chance that BOA will sell part of its shares this week," said Philip Chan, head of research at CAF Securities, the research arm of Agricultural Bank of China.

"With the stress test results also due on May 7 and the market expecting BOA to raise capital there will be pressure on the management to divest some non-core assets," he said.

Shares in CCB have risen 12.2 percent so far this year, in line with the increase in ICBC shares, but underperforming a 39 percent jump at Bank of China.

Industrial and Commercial Bank of China is the largest bank in the world by market value, while CCB is second.

"BAC (Bank of America) could increase capital through sales of businesses such as FirstRepublic and Columbia and investments such as CCB," analysts at JP Morgan said in a report earlier this week.

Shares in ICBC dropped 5.9 percent on April 27, a day before a portion of the strategic foreign holding in the bank was freed for sale. The stock bounced right back after Allianz and American Express sold a part of their stake.

(Editing by Ian Geoghegan)