* Bank of America stock up nearly 1 pct
* BofA ends ties with CCB that began in 2005
* Other U.S. banks also retreating from China investments
By Elzio Barreto, Denny Thomas and Peter Rudegeair
HONG KONG/NEW YORK, Sept 3 Bank of America Corp
said on Tuesday it started selling its remaining stake
in China Construction Bank Corp (CCB) for as much as
$1.5 billion, marking the final step of the U.S. bank's
multi-year exit from the asset.
The Charlotte, North Carolina-based bank joins a list of
Western financial institutions that have found that their
investments in Chinese financial firms did not give them the
foothold they had hoped for in that country.
"The only thing that will be central to banking in China
will be China's domestic banks," said Donald Straszheim, head of
China research at International Strategy & Investment Group in
Earlier this year, Goldman Sachs Group Inc sold out
of its seven-year investment from Industrial and Commercial Bank
The Chinese banking system has shown signs of stress, with
bad loans picking up as economic growth slows. As a result,
several Chinese lenders are preparing to launch equity sales to
bolster their capital base.
But even before the Chinese banking sector weakened, many
U.S. and European banks decided to sell the assets to bolster
their capital bases and focus on their main businesses.
Since U.S. and European banks began building stakes in
Chinese banks, new international capital rules have been
formulated, which will make it more expensive for them to own
shares of other financial institutions.
Bank of America said on Tuesday that it expects to record
about a $750 million gain, before taxes, on the stake sale. With
that profit, its total gains from dividends and selling shares
will amount to nearly $18 billion before taxes, according to
regulatory filings between 2009 and 2013.
The bank's investment dates to 2005 when it paid $3 billion
for a 9.9 percent stake ahead of the Chinese bank's initial
At the time, Bank of America's then chief executive Kenneth
Lewis said the partnership was designed to give Bank of America
more access to roughly 1.3 billion Chinese consumers, while CCB
would benefit from BofA's U.S. retail banking experience.
The U.S. bank increased its holdings in following years,
before paring it down starting in 2009. In 2011, the bank raised
a combined $14.9 billion from selling shares in CCB to a group
of investors that included Singapore's Temasek Holdings
Bank of America launched Tuesday's sale after a lock-up on
its remaining stake expired last month. The bank will continue
its strategic partnership with CCB in business areas like
customer service and sales models, the bank said in a press
The bank launched the offer on Tuesday for 2 billion Hong
Kong-traded shares of CCB in a range of HK$5.63 to
HK$5.81 ($0.73 to $0.75) each, according to a term sheet
reviewed by Reuters. The price is equivalent to a discount of up
to 5.1 percent to Tuesday's close of HK$5.93.
Bank of America shares closed at $14.25, up nearly 1 percent
from Friday's close.
CCB shares are down 4.7 percent since the beginning of the
year in Hong Kong, outperforming the 9 percent decline in the
financial sub-index of the Hong Kong stock exchange in
Bank of America has been cleaning up its balance sheet since
the financial crisis. In the bank's 2012 annual report, chief
executive Brian Moynihan wrote that the bank had divested more
than $60 billion of assets outside its main businesses while
improving capital ratios and maintaining its earnings power.
The Charlotte, North Carolina-based bank increased its
second-quarter profit 70 percent to $3.57 billion.
The bank managed to trim operating expenses by 6
percent while boosting its Basel III capital ratio.
The bank has been particularly active in streamlining its
international operations. In recent years Bank of America sold
its foreign wealth management businesses to Julius Baer Group
and credit card portfolios in Canada, Spain and
Britain to various banks and private-equity firms.
Some foreign banks continue to hold on to their investments
in Chinese lenders. Among them are HSBC Holdings Plc,
which owns a 19.9 percent holding in China's Bank of
Communications Co Ltd and Spain's BBVA's has a 15
percent stake in China Citic Bank Corp Ltd.