Bank of America to boost stake in China's CCB

By Joseph A. Giannone

NEW YORK (Reuters) - Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) said on Tuesday it would exercise part of an option to buy shares of China Construction Bank (0939.HK: Quote, Profile, Research, Stock Buzz), investing HK$14.52 billion (US$1.86 billion) and raising its stake in China's second-largest bank to 10.75 percent.

Bank of America, the No. 2 U.S. bank by assets, said it intended to buy 6 billion of CCB's Hong Kong-listed shares around June 5 for about HK$2.42 each under a formula set when it first agreed to buy a 9 percent stake in CCB investment in June 2005 for US$3 billion.

With CCB shares closing at HK$6.65 in Tuesday trading, Bank of America is getting the stake at a 64 percent discount.

The new shares are currently worth about HK$39.9 billion (US$5.11 billion), offering some good news for a U.S. retail banking giant that has been hit by rising consumer credit losses and a weakening economy.

Bank of America earlier this year raised more than $12 billion to boost capital required by bank regulators. Some analysts have forecast that BofA will cut its dividend in the second half.

The investment in one of the world's hottest markets has paid off handsomely for the North Carolina bank. CCB stock has surged 83 percent since the bank's October 2005 IPO.

After the latest transaction, Bank of America said it would hold about 25.1 billion shares, which means US$4.86 billion of investments by the bank currently have a paper value of US$21.4 billion.

Bank of America spokesman Bob Stickler said the bank would not record any gain from the transaction because the new shares cannot be sold until August 2011 without CCB's consent. The shares will be carried at cost.