DealZone

Bank of America’s stalwart position in China

May 12, 2009

FINANCIAL-BANKOFAMERICA/Ordered by the federal government to find $33.9 billion of capital, Bank of America‘s Ken Lewis seemed to be acting the part of the visionary global business hawk yesterday when he detailed plans to retain a large stake in China Construction Bank. “It’s a strategic partner, and we always want to have a very large ownership position,” Lewis said on a conference call hosted by Calyon Securities.

A few hours later, the bank sold a block of 13.5 billion CCB shares for $7.3 billion, according to a source directly involved in the deal. A lock-up period on the block expired last Thursday. The rest of the bank’s CCB stake — about 10.6 percent — is still locked up, and will be until Aug. 29, 2011.

The China investment may be a great long-term opportunity, but Bank of America is facing severe short-term pressure to raise funds, so a lesser Lewis might have admitted he would have sold more if he could have, but his hands were tied. While no doubt making money on the initial investments it made in 2005, Bank of America has been unloading its CCB stake at a discount to market prices since January.

The latest buyers include a unit of China Life Insurance, Singapore state investment group Temasek Holdings, and China’s Hopu Investment Management, the source said. Hmmmm. Temasek. That’s the same Singapore government investment vehicle that lost buckets on its near 14 percent stake in Merrill Lynch last year. That’s the same Merrill Lynch that Bank of America bought for just under $20 billion at the beginning of the year and has been paying for ever since. If the promise of business in China remains the gold standard it has been over the past three decades, Temasek may yet see its foray into U.S. banking pay off.

Deals of the Day:

* GlaxoSmithKline will take a 16 percent stake in Africa’s biggest generic drug maker, Aspen Pharmacare, to expand its emerging market footprint in a deal worth 3.47 billion rand ($418 million).

* Microsoft Corp Chief Executive Steve Ballmer said reports that the company may buy German software firm SAP were a random rumor.

* Media mogul David Geffen tried to buy a stake in the New York Times from hedge fund Harbinger Capital Partners, but was rejected, a source with knowledge of the matter said.

(PHOTO: Bank of America’s Ken Lewis joins TARP recipient financial institution leaders before they testify before House Financial Services Committee on Capitol Hill in Washington, in thisĀ  February 11, 2009 file photo.)

Comments
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Desperate measures in desperate times. I still believe it’s a mistake to sell those 13.5 billion CCB shares. The 7.3 billion they made is nowhere near the 33.9 billion they need to find. This large stake in CCB is a strategic asset that will be worth its weight in gold in the near future. Temasek knows this very well and probably is delighted to acquire this stake at a discount price.

 

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