Bank of America to Pay $7 Billion to Double CCB Stake
Bank of America Corp. will pay $7 billion to almost double its stake in China Construction Bank Corp., adding to the purchase of Merrill Lynch & Co. even as it cuts jobs and gets government bailout funds.
The biggest U.S. bank by market value will boost the three- year-old holding in China’s No. 2 lender to 19.13 percent from 10.8 percent by buying shares from the government. China Construction fell 5.4 percent in Hong Kong at 12:15 p.m. on concern Bank of America may sell stock it bought in 2005 after a lockup period on that stake ended last month.
Chief Executive Officer Kenneth Lewis, three weeks after getting $15 billion from the U.S. government, raised his bet on China Construction after the stock lost 45 percent in the past six months. He is paying 32 percent less than yesterday’s closing price. The move came as Citigroup Inc. announced plans to eliminate 52,000 jobs following four quarters of losses.
“People should be delighted that Bank of America is thinking long term about its options and isn’t just barricaded in their shack out in the woods,” said Daniel Rosen, principal of Rhodium Group, a New York firm that advises companies on overseas investments.
Bank of America isn’t funding the purchase with proceeds from the government’s Troubled Asset Relief Program, or TARP, said spokesman Scott Silvestri. Merrill received $10 billion through the Treasury’s $250 billion bank-rescue package.
1.2 Times Book
“This is falling closely on the heels of their receiving TARP money, which was intended to spur lending in the U.S. or have bigger, stronger banks buy the failing banks,” said Jaime Peters, an analyst at Morningstar Inc. in Chicago. “But neither of these things is happening.”
Bank of America, based in Charlotte, North Carolina, first invested in China Construction in June 2005, buying a $3 billion stake before the lender went public. It invested another $1.9 billion in June. The value of its holding almost tripled, to $14.5 billion, as of Sept. 30, a regulatory filing showed.
The company will buy China Construction shares denominated in Hong Kong dollars at 1.2 times audited book value as of Sept. 30, the Chinese bank said without elaborating. China Construction’s unaudited book value per share was 2.05 yuan, according to its third-quarter report. The bank will publish audited results on Nov. 21.
The terms suggest Bank of America will pay as much as 2.46 yuan per share, equivalent to HK$2.79. The stock closed at HK$4.11 yesterday. A China Construction investor relations officer confirmed the price for the stake.
Tags: CCB, China Construction Bank, China Investment, china stock, CitigroupPages: 1 2
