Bank of America is seeking $1.5 billion from the sale of China Construction Bank shares as it ends an eight-year investment in the second-largest Chinese lender by market value.
Bank of America is offering its remaining 2 billion Construction Bank shares for HK$5.63 to HK$5.81 each, according to terms for the deal obtained by Bloomberg News. That represents a discount of as much as 5.1 percent to today's closing price in Hong Kong.
The lender joins Goldman Sachs, HSBC and Citigroup in cutting stakes in Chinese financial institutions as new capital rules known as Basel III make it more expensive to hold minority stakes in banks. Bank of America had reaped at least $15 billion in sales proceeds and dividends from its investment before today's offer, according to Bloomberg calculations based on its filings.
"Stake sales are a prudent move," Sandy Mehta, chief executive officer of Value Investment Principals in Hong Kong, said in an e-mail today. B of A selling its CCB shares continues the trend of "Western banks selling down stakes and raising capital wherever and whenever they can," he wrote.
Mark Tsang, a spokesman for Bank of America in Hong Kong, declined to comment.
The second-biggest U.S. lender offloaded Construction Bank shares four times before the latest transaction. It paid $3 billion for a 9.9 percent stake in Construction Bank before its initial public offering in 2005, and later exercised an option to buy another 11 percent for about $9.2 billion.
Not including Bank of America's CCB sale, foreign institutions have raised at least $14 billion from divesting shares in Chinese financial firms since the start of 2012, according to data compiled by Bloomberg News.
New rules set by the Basel Committee on Banking Supervision require capital deductions for holding minority investments in other financial institutions.
U.S. regulators are also pushing for bigger cushions against potential losses, proposing in July that lenders' leverage ratios, or capital as a percentage of total assets, be pegged at 5 percent for holding companies, 2 percentage points more than the international minimum.
"One of the reasons they're selling is to get regulatory relief," Charles Peabody, an analyst at Portales Partners, said before the offer was launched. "Capital you have to hold against" equity stakes in financial firms is high under the latest international standards, he said.
Bank of America's leverage ratio was between 4.9 percent and 5 percent, the company said July 17, as it reported second- quarter profit that beat estimates. Net income in the period climbed 63 percent from a year earlier as the lender cut costs by 6 percent and boosted revenue by 3.5 percent.
Goldman Sachs sold its remaining stake in Industrial & Commercial Bank of China in May for $1.1 billion, capping a $2.58 billion, seven-year investment in the nation's largest lender by garnering about $12 billion in sales proceeds and dividends. Citigroup sold in March 2012 its stake in Shanghai Pudong Development Bank nine years after buying it, for an after-tax gain of $349 million. HSBC completed in February a $9.4 billion sale of Ping An Insurance shares.
Global financial firms including Temasek Holdings, Singapore's state-owned investment company, invested $33 billion in Chinese lenders from 2001 to 2009, according to the country's banking regulator. They still own at least $30 billion of shares in local banks, data compiled by Bloomberg show.
Temasek, which isn't subject to the same capital requirements as European and U.S. firms, held 7.15 percent of Construction Bank's outstanding shares as of March 31 after buying 3.77 billion shares from Bank of America on Nov. 11, 2011.
The Singaporean institution has accumulated about $20 billion of holdings in Construction Bank, Industrial & Commercial Bank and Bank of China over the past two years, according to data compiled by Bloomberg.
China's government is the largest shareholder in the nation's four biggest banks, owning an average 68.8 percent of their stock at the end of March, according to the lenders' earnings statements. Some 57.22 percent of Construction Bank's shares were state-owned, according to its first-quarter profit statement released April 26.
A gauge of financial stocks in the CSI 300 Index has fallen 7.9 percent this year, compared with the broader gauge's 6.7 percent drop, as a slowing economy hurts earnings growth. Chinese bank profits may decline in the next three years as a government crackdown on industrial overcapacity curbs lending and sours loans, Josh Klaczek, an analyst at JPMorgan Securities (Asia Pacific), said on July 31.
The stock slump has dragged valuations of Construction Bank and its closest rivals to near record lows. Construction Bank, which has lost 4.7 percent this year in Hong Kong, is valued at about 5.6 times estimated 2013 earnings, down from 14 times in November 2009, data compiled by Bloomberg show.
The lender had a 9.7 percent increase in second-quarter net income, based on figures announced Aug. 25, the slowest growth in five quarters as bad-loan charges rose amid the nation's economic slowdown.