Monday’s decision should end speculation that surfaced earlier this year that Bank of America might sell some of its three-year-old investment to bolster its own capital, as losses mount from deteriorating consumer credit.
Bank of America said it will increase its stake in China Construction Bank by exercising the rest of an option to buy shares from China SAFE Investments Ltd, a state investment arm.
Following the purchase, Bank of America would own 44.7 billion shares. The bank said it expects to close the transaction this month, and “remain a long-term and significant strategic investor” in China Construction Bank. The Chinese bank’s market value is about $126 billion, Reuters data show.
The investment has so far proven successful for Charlotte, North Carolina-based Bank of America, the third-largest U.S. bank by assets.
Bank of America in June 2005 spent $3 billion for a 9 percent stake in the Chinese bank, and this July invested another $1.9 billion. The $4.9 billion total investment was worth $14.5 billion as of September 30, Bank of America said.
Shares of China Construction Bank have risen 75 percent since the bank’s October 2005 initial public offering, despite falling by more than half from their October 2007 peak.
Bank of America announced the latest investment amid growing struggles at home. Last month, it cut its dividend in half after rising credit losses contributed to a 68 percent decline in third-quarter profit.
The bank has already raised more than $22 billion of capital this year, and is getting $25 billion from the $700 billion government package to shore up the financial industry.
Bank of America in July paid $2.5 billion for Countrywide Financial Corp, the largest U.S. mortgage lender.
It expects by year-end to complete its acquisition of Merrill Lynch & Co MER.N, the Wall Street investment bank and brokerage, in an all-stock transaction originally worth $50 billion.
Shares of Bank of America fell 89 cents, or 5.4 percent, to $15.53 in afternoon trading on the New York Stock Exchange. Through Friday, the shares had fallen 60 percent this year.
Reporting by Jonathan Stempel; editing by John Wallace and Gerald E. McCormick