DealZone

Uncertainty principles

May 6, 2009

DEALS/Faced with a $34 billion hole uncovered in the stress test, Bank of America might have little choice but to dump its investment in China Construction Bank, China’s second-largest bank. That would give it about a quarter of the $34 billion of additional capital we are told it needs to fill a yawning gap in its foundation. A lock-up on a portion of the stake ends tomorrow, and the opportunity may be too good for embattled CEO Ken Lewis to pass up, though the bank has plenty of incentive to hold onto the stake.

Citigroup’s Keith Horowitz raised his price target on the bank, citing the end of uncertainty. He also says the total need at the 19 stress-tested banks will be $75 billion, with Bank of America accounting for the lion’s share.

At this point, with hundreds of billions of public dollars having been heaved at the likes of AIG, Citi, Bank of America, automakers, auto suppliers, life insurers, etc. that number is hardly shocking. And with the S&P having recovered 25 percent of its recession-fueled losses, is it time to expect investors to become more aggressively exposed to the end of uncertainty?

Other deals of the Day:

* British insurer Aviva is exploring options to sell its Australian business, which has an estimated value of up to A$1 billion ($740 million), sources with direct knowledge of the matter told Reuters.

* GlaxoSmithKline has agreed to sell the U.S. rights to the antidepressant Wellbutrin XL to its Canadian partner Biovail Corp for $510 million, the world’s second-biggest drugmaker said.

* The clans that control the Porsche automotive empire are set to meet in the hopes of finding a solution to its high-risk takeover plans for Volkswagen that have backfired.

(PHOTO: Ken Lewis, Chairman, Chief Executive Officer and President of Bank of America in New York, June 11, 2008.  REUTERS/Chip East)

Comments
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Is it wise to sell this stake in the China Construction Bank? I believe this is beheading the goose that can lay the future golden eggs. Having a stake in the number three bank of China is a valuable strategic asset that shouldn’t be dumped.

 

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