Bank of America (BofA) has agreed to sell approximately 13.1 billion common shares of China Construction Bank (CCB) in a private transaction with a group of investors. The sale is expected to generate approximately US$8.3bn in cash proceeds. The transaction is expected to close in the third quarter of 2011, and is subject to customary closing conditions. Following closing, BofA will hold approximately 5% of CCB.
“Our partnership with CCB has been mutually beneficial,” said BofA chief executive officer (CEO) Brian Moynihan. BofA and CCB are discussing a potential expansion and extension of the existing assistance agreement.
“This sale of approximately half of our shares of CCB stock is expected to generate about US$3.5bn in additional Tier 1 common capital and reduce our risk-weighted assets by US$7.3bn under Basel I,” said chief financial officer (CFO) Bruce Thompson. “This month alone, through non-core asset sales and other actions, we expect to generate approximately US$5.8bn in additional Tier 1 common capital and reduce risk-weighted assets by approximately US$16.1bn under Basel I.”
The current proposed Basel III standards place restrictions on capital that represents ownership in financial institutions above 10%. The sale of CCB shares announced today would put BofA’s ownership in CCB below 10% and would remove the significant investment in financial institutions deduction from the company’s Tier 1 common capital under Basel III associated with this CCB stake.
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