HONG KONG (Reuters) - Bank of America could soon sell shares in China's second-largest bank that could raise about a quarter of the $34 billion in additional capital it is reported to need after a government stress test.
Bank of America (BAC.N) is allowed to sell 13.5 billion shares in China Construction Bank (601939.SS) (0939.HK) -- a 6 percent stake worth around $8.3 billion -- when a lock-up period ends on Thursday.
That would draw down BofA's stake in the Chinese lender to 10.6 percent, a level CCB has already said is reasonable. Western banks are aware that selling out of Chinese banks is not always well received by Beijing politicians.
CCB shares dipped 1.5 percent in Hong Kong on Wednesday.
Three Hong Kong-based investment bankers who spoke to Reuters said it is not yet clear how much, if any, of its CCB shares BofA will sell when the lock-up ends. The bankers were not authorized to speak publicly about the matter.
"Bank of America intends to remain a long-term shareholder and strategic partner in China Construction Bank," said BofA spokesman Scott Silvestri.
Raising money by selling the CCB stake would help BofA boost its capital at a critical time for the bank, which has been deemed to need an additional $34 billion in capital after stress tests in the United States, a source familiar with the results told Reuters.
"There has been healthy short selling in CCB shares in recent days so the market is factoring in a very high chance that BOA will sell part of its shares this week," said Philip Chan, head of research at CAF Securities, the research arm of Agricultural Bank of China.
"With the stress test results also due on May 7 and the market expecting BofA to raise capital there will be pressure on the management to divest some non-core assets," he said.
BofA is eligible to receive a $165 million CCB dividend if it waits until after June 23, according to CCB's last earnings release.
In June 2005, BofA agreed to pay $3 billion for a 9 percent stake in CCB -- a shareholding that later grew to 16.6 percent. The deal, like other Western banks buying into Chinese lenders, was meant to be a long-term, cross-border partnership.
But the financial crisis has led several Western banks to sell their stakes in Chinese banks to raise much-needed cash.
Industrial and Commercial Bank of China 0349.HK (601398.SS) is the largest bank in the world by market value, while CCB is second.
"BAC (Bank of America) could increase capital through sales of businesses such as FirstRepublic and Columbia and investments such as CCB," analysts at JP Morgan wrote earlier this week.
Shares in ICBC dropped 5.9 percent on April 27, a day before a portion of the strategic foreign holding in the bank was freed for sale. The stock bounced right back after Allianz (ALVG.DE) and American Express (AXP.N) sold a part of their stake.
Editing by Ian Geoghegan