* BBVA first invested in CITIC Bank in 2006
* BBVA to make cash loss of up to 120 mln euros from sale
* Retains 9.9 pct stake and set to open its own China branch
* Attention turns to Caixabank's stake in Bank of East Asia
By Denny Thomas and Sarah White
HONG KONG/MADRID, Oct 17 Spanish lender BBVA
agreed to sell $1.27 billion of CITIC Bank Corp
shares to bolster its capital, becoming the latest
foreign bank to start unwinding often difficult Chinese
Spain's second-biggest bank by market value is selling a 5.1
percent stake in the Chinese lender to state-owned parent group
CITIC Ltd. That will leave BBVA with 9.9 percent, just below a
regulatory threshold that would penalise it for owning shares in
Tougher global rules on banks' capital ratios and their
ownership of financial institutions have forced BBVA and others
to set aside more cash and sell holdings in foreign lenders.
Several major U.S. and European banks including Bank of
America and Switzerland's UBS have already
sold out of Chinese lenders, cutting back partnerships that
could be profitable on paper but were not always productive at
an operational level.
The foreign exits also come as the Chinese banking system is
showing signs of stress, with bad loans picking up as economic
BBVA said on Thursday it would make a cash loss of up to 120
million euros ($161.90 million) from the CITIC sale. It will
also take a 2.3 billion hit to 2013 earnings after reducing the
value of CITIC shares remaining on its books to the market
Analysts at Sabadell said the losses would almost halve
their 4.7 billion euro forecast for BBVA's net profit this year.
BBVA said the sale would free up 2.4 billion euros of
capital under Basel III rules, which start to come in next year.
The rules penalise lenders for holding stakes of more than 10
percent in other banks.
Unlike BBVA, Bank of America generated a paper profit more
than five times the original cost of its investment in China
Construction Bank Corp (CCB) when it ended the eight
year-old partnership in September.
BBVA said in 2009 it had invested a total of about 3 billion
euros in CITIC.
Shares in BBVA and CITIC Bank, China's 10th-largest lender
by market value, were little changed on Thursday.
TRICKY CHINESE VENTURES
Foreign banks snapped up stakes in Chinese lenders as they
prepared to list on stock markets five to six years ago.
The partnerships were meant to give them a foothold in the
world's second-largest economy and enable Chinese banks to gain
expertise in developing new products and risk management.
But some of the ventures have been slow to bear fruit. BBVA,
which entered China seven years ago, has yet to close a merger
and acquisition deal as an adviser in Asia yet, for example.
BBVA's move has turned investors' attention to another
Spanish bank holding in a Chinese lender - Caixabank's
15.9 percent stake in Hong Kong-based Bank of East Asia Ltd
HSBC Holdings Plc also has a 19.9 percent holding
in China's Bank of Communications Co Ltd.
BBVA said the sale of part of its CITIC stake will allow it
to try a new strategy in China, working with its partner on a
"BBVA plans to open a fully-operational branch in China,
something that we couldn't do before," BBVA's Chief Financial
Officer Manuel Gonzalez Cid said, adding that China remained
attractive in part because of trade-finance links with Latin
America, where BBVA has big operations.