Bank of America (BAC) will liquidate nearly all of its holdings in China Construction Bank, continuing a process to reduce its stake in the bank to bolster capital. Bank of America, like other financial firms (but even more so), is shedding assets to build up capital so it can comply with new requirements for large banks, and it wants to convince investors that its capital levels are more than adequate to deal with any weakness in Europe or other credit risks.
Bank of America already sold 13 billion shares in August, Bloomberg notes, and will sell 10.4 billion common shares this month to a group of private investors. The company said the transaction will result in a pretax gain of $2.9 billion, or $1.8 billion after taxes. Bank of America will own about 1% of the Chinese bank’s shares after the transaction.
“Our decision to sell the bulk of our remaining shares in China Construction Bank is consistent with our stated objective of continuing to build a strong balance sheet,” said Chief Financial Officer Bruce Thompson. “We expect this action, supplemented by the related realization of deferred tax assets, will generate approximately $2.9 billion in additional Tier 1 common capital and further strengthen our Tier 1 common capital ratio by approximately 24 basis points under Basel I.”
BAC fell 2% in morning trading.
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