BofA sale highlights end of era for foreign, China banks

BEIJING/HONG KONG Tue Nov 15, 2011 2:57am EST

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BEIJING/HONG KONG (Reuters) - Bank of America's sale of most of its shares in China Construction Bank earned the U.S. lender a tidy profit, but also underlined that BofA, like other foreign financial groups, found scant strategic gain in the Chinese stake it built.

While banks from New York to Zurich may point to the odd initiative here or there forged with a Chinese bank they held a stake in, the hopes of broader collaboration mostly never panned out in the roughly six years since the deals were struck.

In the end, the tie-ups were nothing more than sound investments for the foreign banks, as shares of large Chinese lenders have soared since Beijing bailed them out and took them public on the mid-2000s.

Some foreign companies maintain sizable holdings in Chinese lenders, though those stakes are also seen as more financial than strategic. <ID:L3E7MF06A>

"The amount of collaboration that has happened between these institutions is pretty much close to nil," said Mike Werner, senior equity analyst with Sanford C Bernstein. "What they realized is that it became quite expensive for them to do that from a capital perspective."

Goldman Sachs, UBS (UBSN.VX) and RBS (RBS.L) were among the Western financial groups that bought into China's banks around 2006. In most cases, the deals involved purchasing pre-IPO stakes in the banks before they were floated on the Hong Kong and Shanghai stock exchanges.

The true test of the China stakes came right after the 2008 financial crisis, when banks such as UBS and Royal Bank of Scotland (RBS.L) were in dire need of money.

As much as Beijing wanted the foreign banks to keep their holdings as a sign of good faith, the weight of the crisis was too much and both banks sold out of their shares in 2009. Both banks had invested in Bank of China.

Morgan Stanley (MS.N) last year agreed to sell its 34.3 percent stake in China International Capital Corp, China's top investment bank, a piece it held since 1995. While that relationship differed from the other tie-ups, it was also a prime example of a holding that failed to offer strategic advantages and, in the end, became simply a good investment.

Goldman Sachs has executed three selldowns of its stake in China's ICBC, and currently maintains a 2.3 percent ownership.

When Goldman launched its latest selldown last week, several factors were attributed to the sale, including the idea that Goldman, looking ahead over the next few quarters, saw only dark clouds hanging above the market, both in China and globally.

In short, some took it as a sign of smart money hitting the exits to lock in a gain before things get worse. ICBC issued a statement saying it supported the sale.

From the standpoint of the Chinese banks, there is the feeling that they no longer need to be connected to foreign firms -- China banks have matured and in many ways are in far better financial shape now than their global counterparts.

It's possible that China banks got more strategically out of the deals than their investors, but at this stage the point is moot.

In a telling sign that China outgrew this cross-border trade-off, when the Agricultural Bank of China went public in Hong Kong last year no foreign banks were invited to be pre-IPO investors. For the last of China's Big Four to launch an IPO, Beijing decided that no foreign partnership was needed.

BOFA DEAL

The cash-strapped Bank of America (BofA) said on Monday it made an after-tax profit of $1.8 billion from its latest sale of CCB shares as it looks to boost capital levels.

The move follows last week's $1.1 billion stake sale by Goldman Sachs (GS.N) in Industrial and Commercial Bank of China Ltd (1398.HK). In August, BofA sold an $8.3 billion stake in CCB soon after the lock-up on the stake expired.

In a statement on its website, CCB (601939.SS) said BofA's decision to sell most of its remaining shares reflected "market behavior that stemmed from its own needs and will not have any impact on the bank's business and development".

It noted its strategic relationship with the biggest U.S. bank helped improve CCB's asset quality.

CCB's total assets hit 11.8 trillion yuan ($1.86 trillion) at end-September, and its capital adequacy ratio was at 12.58 percent. The bank's non-performing loan ratio was 1.02 percent.

CCB shares reversed an early drop to trade up 1 percent at HK$5.58, while the benchmark Hong Kong share index .HSI was down 1 percent.

HSBC and Spain's BBVA (BBVA.MC) are among the two foreign banks that have not cut their stakes in Chinese lenders. ($1 = 6.354 Chinese Yuan)

(Additional reporting by Aileen Wang and Michael Flaherty; Editing by Nick Edwards, Ken Wills and Alex Richardson)

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