Bank Of America Hits Roadblock In China
Tina Wang,
Reports of a scuttled attempt to unload some of its stake in China Construction Bank has tongues wagging over whether Beijing played a role.
It's not certain precisely why Kenneth Lewis canceled Bank of America's sale of China Construction Bank shares at the 11th hour. But market speculation that pressure from Beijing was involved could send a warning signal to other foreign banks eager to raise capital by unloading their stakes in Chinese banks next year.
Bank of America
Market rumors suggest that China Construction Bank's major shareholder, Central Huijin Investment Co., which is an investment vehicle of the country's sovereign wealth fund China Investment Corp., was opposed, but the real reasons remain "a mystery," said Ivan Li, Hong Kong-based analyst for Kim Eng. "I think it's quite unusual that the deal became canceled at the last minute." The Chinese government is scrambling to prop up the domestic stock market, with Central Huijin buying up Shanghai-listed shares of major state banks.
Legal concerns may have colored Bank of America's decision, too. Under Chinese securities law, an investor owning over 5% of a Chinese company that sells shares of that company within half a year of their purchase risks forfeiting profits from the sale, according to one report. Bank of America nearly doubled its stake in China Construction Bank to 19.1% with a $7.0 billion share purchase in November (See "Bank of America Tightens Embrace of Chinese Lender").
Still, Bank of America is set on selling and looks likely to try again in 2009, as it would net a tidy profit from selling the shares for over four Hong Kong dollars (52 cents), for which it paid about 1.15 Hong Kong dollars (15 cents) in 2005. The money would help shore up its balance sheet, which has been strained by rising loan losses and costly acquisitions of Merrill Lynch and Countrywide Financial. "The strategic decision has probably been made to dispose of part of this stake, and the only question is the timing," said Tai Fook Research analyst Paul Lee. The shares could only be sold after a lockup period that ended in October.
Bank of America is reportedly the first to try to reduce its stake as two- and three-year lockup periods for Western banks' holdings of Chinese banks have begun to expire. A possible wave of selling in 2009 could further test Beijing and its propensity to intervene in such matters.
Royal Bank of Scotland
www.forbes.com/markets/2008/12/19/bofa-ccb-china-markets-equity-cx_twdd_1219markets1.html