Bank of America sells China bank stake

By Tony Munroe

HONG KONG (Reuters) - Bank of America Corp, coping with tough economic conditions, raised $2.83 billion by selling part of its stake in China Construction Bank Corp, and Hong Kong's richest tycoon sold a $500 million stake in rival Bank of China.

Shares in China's big banks skidded on Wednesday after the sale by the largest U.S. bank by assets. Investors expected further sales in the face of slowing earnings growth at mainland lenders and the lapse of lock-up provisions restricting sales.

China's three largest banks had attracted big strategic investments from Western financial groups at the time of their initial public offerings. Some of those banks, including Royal Bank of Scotland Plc, are now under pressure to sell as the global financial crisis ravages the banking industry.

Bank of America sold more than 5.62 billion Construction Bank shares at HK$3.92 apiece, according to a term sheet obtained by Reuters. The sale reduces the bank's stake in the Beijing-controlled lender to 16.6 percent from 19.1 percent.

The terms represented a 12 percent discount to Construction Bank's Tuesday closing stock price. Bank of America realized a profit of about $1.13 billion, based on Construction Bank's IPO price in 2005. The U.S. bank acquired its initial stake ahead of the IPO.

"The news has been expected, but investors will still take it hard because (Bank of America) will most definitely sell more," said Francis Lun, general manager with Fulbright Securities in Hong Kong. "They need the money."

Bank of America is raising money amid a broad downturn for U.S. banks and as it absorbs Merrill Lynch & Co, which it bought on Jan 1.

The bank and Merrill were awarded a $25 billion infusion as part of the U.S. government's $700 billion banking industry bailout, but some analysts believe more capital may be needed.

"Bank of America is reducing its China Construction Bank shares due to its consideration of its own financial conditions under the current severe turbulence of the international financial crisis," Construction Bank said in a statement. "Construction Bank expresses its understanding."

Bob Stickler, a Bank of America spokesman, said the bank will remain Construction Bank's second-largest shareholder and a "long-term strategic partner."

"We simply took a little money off the table," he said.

HIGH BARRIERS

A foundation controlled by tycoon Li Ka-shing was later on Wednesday selling Bank of China shares worth up to $524 million.

Li, the chairman of conglomerate Hutchison Whampoa Ltd and property developer Cheung Kong (Holdings), was selling 2 billion shares at HK$1.98 to HK$2.03 each, according to a term sheet.

The shares were sold at a discount of 5 percent to 7.5 percent to their HK$2.14 Wednesday closing price in Hong Kong. Bank of China shares trade below their HK$2.95 IPO price.