Singapore investment vehicle Temasek cut its losses in Bank of America and ran in the first quarter, dumping a 3 percent stake, for which it took a $3 billion hair cut. Having watched its relatively high-risk investment in Merrill Lynch turn to dust, the Singapore state agency turned to firmer ground: China.

Temasek was among the investors to gobble up a stake in China Construction Bank that Bank of America sold earlier this week as it further drew in its horns from the global recovery story. Sources say the move fits with Temasek’s focus on global companies that aim to grow in Asia, noting that Bank of America is losing whatever global allure it may have bought along with Merrill’s bad assets. Getting a “gentleman’s C” in the stress test doesn’t inspire much confidence either.

However bad things get for Bank of America, it’s hard to dispel the ghosts of China’s policy banking bedrock. Though they will tell you they have been shedding dud assets from their balance sheets for years, nobody is under any illusions about either transparency or solvency of the People’s banking system. That’s not to say such investments won’t pay off. After all, as the axiom goes, no risk, no gain.

Deals of the Day:

* British bank Barclays is in talks to sell its asset management business, Barclays Global Investors, a source familiar with the matter said.

* Miner Rio Tinto remains committed to a planned $19.5 billion tie-up with Chinese metals firm Chinalco, it said, responding to talk that the deal may be revised to let more shareholders take part in a rights issue.

* German cement maker HeidelbergCement may sell up to a 14 percent stake in Indonesian unit PT Indocement Tunggal Prakarsa, worth around $270 million, to help pay down debt, sources familiar with the deal said.

* Taiwan’s KGI Securities will pay T$29 billion ($880 million) for the brokerage arm of Taishin Financial, in the latest consolidation of the island’s fragmented and competitive financial sector.

(PHOTO: Temasek Holdings Chief Executive Ho Ching listens to a question during a news conference in Singapore February 6, 2009. REUTERS/Vivek Prakash)

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 this  February 11, 2009 file photo.)

Singapore’s Temasek made clear how bullish it is on Merrill Lynch in a Bloomberg TV interview, expressing great confidence in CEO John Thain. The news service reported that the Singapore wealth fund has U.S. clearance to raise its stake in the brokerage to as much as 14 percent. That would be worth roughly $1.7 billion on the open market. Though less if they issued new shares, it would certainly help Merrill deal with the $5.7 billion in write-downs it said it would take in the third quarter, and would probably be worth even more as a sign of steady capital support from its biggest share holder.

Such lifelines are likely to keep pumping funds into struggling Western banks, according to a regional executive at one of the world’s biggest institutional money managers. Hon Cheung, regional director of the Official Institutions Group in Asia at State Street Global Advisors said he expects the funds increasingly to adopt passive investment approaches, given the need to move large amounts of money without disrupting markets. “Their purpose is not to support the U.S. taxpayer or the U.S. economy or to ensure stable global markets. If by doing that, they get a side benefit that’s great. But their principal job is to benefit the stakeholders,” said Cheung. And as these sovereign wealth funds aren’t even really beholden to share holders, they may have stomach for even more stunning losses.

Lehman Brothers has asked three private equity firms to remain in the bidding for its asset management arm even though the investment bank has yet decide on whether to sell the unit, the Financial Times reported. Kohlberg Kravis Roberts, Hellman & Friedman and Bain Capital have been told by Lehman that their bids are high enough to go forward, the paper said, citing people familiar with the matter. Although Lehman has not reached a decision, it has been soliciting bids from private equity firms to gauge interest in its asset management arm, which includes Neuberger Berman, the fund manager, and minority stakes in several hedge funds.

Other deals of the day:

* Steelmaker POSCO and Hyundai Heavy Industries officially expressed interest in acquiring a majority stake in world No. 3 shipyard Daewoo Shipbuilding & Marine Engineering estimated at up to $8 billion.

* ConocoPhillips is expected to sell the remainder of its 600 company-owned gasoline stations to PetroSun West for $800 million, the Wall Street Journal said.

* Danish shipping and oil group A.P. Moller-Maersk said it was launching a bid worth 3.62 billion Swedish crowns ($569 million) for shipping company Brostrom.

* Sweden-based private equity firm EQT said it had sold its remaining stake in paper products maker Duni AB for an undisclosed sum.

* British market research group Taylor Nelson Sofres said it continued to oppose a hostile takeover bid from WPP despite preferred suitor GfK giving up its takeover attempt.

* Commonwealth Bank of Australia, the country’s second largest bank by assets, was unlikely to buy Indonesia’s Bank Ekonomi Raharja, an industry source told Reuters.

* Leading Turkish conglomerate Sabanci Holding wants to find a partner for its insurance unit Aksigorta rather than selling it, said group chairwoman Guler Sabanci.

* AIM-listed Proventec Plc, which provides specialist steam cleaning and coatings technologies, said it has acquired a 60 percent stake in German engineering company Frank for an undisclosed sum.

* Singapore-based KOP Capital, controlled by the emirate-owned Dubai Group, will buy a 50 percent stake in European hotel chain Stein Group for $250 million, and spend about the same amount on new hotels in Asia.

* Private equity firm 3i Group may invest 8-10 billion rupees ($183-$229 million) in a south Indian port operator for a stake of up to 26 percent, the Mint newspaper said, citing an official at the Indian firm.

* New Zealand grocery co-operative Foodstuffs will not appeal a court-imposed ban on it bidding for New Zealand’s largest-listed retailer, The Warehouse Group, the company said.

Singapore wealth fund Temasek may have gotten hold of some bad stuff this year when it bought a 9 percent stake in Merrill Lynch. The stock has lost more than half its value since the purchase was announced in late December. But far from swearing off noxious bank assets, the flush Asian fund says it wants more. And why shouldn’t it? It just doubled its full-year profit by selling assets in local power and its national telecoms and airlines companies, as well by cutting a stake in Bank of China, so the toxicity of Merrill’s share price is not making it sick. Financials grew by two percentage points to 40 percent of its portfolio in the year through March and are likely to grow further, with Temasek saying it expects contagion from the credit crisis to spread. That should keep prices down for a while. Temasek said it will not cap its investments in the sector, but it was mum on whether it was thinking of taking on any Lehman exposure.

India’s largest oil producer ONGC has agreed a 1.4 billion pounds ($2.6 billion) takeover of Russia-focused oil explorer Imperial Energy Corp as it works to secure energy to fuel India’s booming economy. Imperial said ONGC’s overseas arm, ONGC Videsh, would pay 1,250 pence in cash for each of its shares in a deal that could double state-owned ONGC’s proved and probable reserves. This is less than the 1,290 pence approach Imperial said last month it was discussing with an unnamed bidder, which sources close to the matter identified as ONGC. Investors aren’t wholly convinced though, with the shares trading down more than 1 percent this morning after rising sharply in recent weeks on hopes for a bidding war.

Infosys Technologies agreed to buy British consultancy Axon Group for 407 million pounds ($753 million) as India’s second-biggest software services exporter looks for growth beyond an uncertain U.S. market. The cash deal values Axon at six pounds per share, a 19.4 percent premium over Friday’s close of 5.025 pounds and 33 percent over the average price of the last six months, Infosys CEO Kris Gopalakrishnan said. The stock has risen to 611, and Infosys shares have taken a hit as expectations rise another bid will emerge. Altium Securities said in a note it believed there was room for a counterbid closer to 700 pence.

Other deals of the day:

* Hyundai Heavy Industries, the world’s top shipbuilder, expressed its interest in Daewoo Shipbuilding, joining three other major bidding groups vying for its smaller rival. State-owned Korea Development Bank (KDB) and a government agency have put up for sale their combined 50.4 percent stake in the world’s No. 3 shipbuilder, in a deal estimated to fetch up to $8 billion, more than double Daewoo Shipbuilding’s current market price.

* Bluescope Steel, Australia’s top steel maker, will sell its New Zealand iron sands mining operation for NZ$250 million ($176 million) to Hong Kong’s Cheung Kong Infrastructure Holdings, the company said.

* Pennar Industries said Hyderabad’s JR Realtor Services had acquired 13 million shares, or 10.28 percent of its share capital.

Asia’s sovereign wealth funds may be loaded, but they don’t need long memories to recall the big losses they’ve suffered on seemingly sure-thing investments in Wall Street’s troubled banks. So with reports that Lehman Brothers came up empty in efforts to win funds from top Chinese brokerage CITIC Securities and state-owned Korea Development Bank, it’s anybody’s guess where it will come up with the cash it needs to deal with an expected $4 billion in writedowns before announcing results in September.  

The path most traveled heads further east, to Singapore and the gulf, where investors could be equally, if not more gun-shy given the news flow. A ray of hope could shine from Singapore though. State investment firm Temasek said it was prepared to plunk more money into Western banks. An Singapore sling couldn’t come at a better time. This morning, Citi’s Prashant Bhatia became the latest big bank analyst to warn on Lehman and fellow investment banks Goldman and Morgan Stanley, lowering third quarter estimates for all three, and The Wall Street Journal says the Fed had called Credit Suisse last month to see if it had pulled a credit line from Lehman, acting to prevent a repeat of the cascading speculation that helped sink Bear Stearns.

U.S. private equity investor Lone Star is buying the rump of lender IKB, Germany’s most prominent casualty of the subprime crisis. The sale by state bank KfW closes an embarrassing and costly chapter for Europe’s biggest economy. IKB nearly collapsed a year ago under the weight of $24 billion in investments linked to risky U.S. home loans, making it Europe’s first major victim of the global financial crisis. The government brokered the first of three rescues to avert what the country’s banking watchdog warned could trigger Germany’s biggest financial crisis since the 1930s depression. But as the cost of the rescues spiraled towards 10 billion euros ($14.8 billion), Berlin started looking for a buyer.

In a Wagnerian triumph echoing through Europe’s car factories, ball-bearing maker Schaeffler has won the battle for control of tires-to-brakes firm Continental. Continental Chief Executive Manfred Wennemer, who had slammed Schaeffler as “egotistical, autocratic and irresponsible” after it covertly gathered 36 percent of Continental’s stock, will go by the end of the month, leaving the way clear for the creation of the world’s third-biggest car-industry supplier, with sales of $50 billion. The agreement allows Schaeffler’s stake to creep up to just under 50 percent. But with effectively 36 percent already, the Bavarian group owned by glamorous billionaire Maria-Elisabeth Schaeffler and her son already has control.

Mizuho Financial Group, Japan’s second-largest bank by assets, said it would invest $120 million in U.S. merger advisory firm Evercore Partners, marking the latest push by a Japanese financial company into the world’s largest economy. Mizuho and Evercore, a boutique company that advises on larger mergers and acquisitions, also agreed to work together on M&A deals between Japan and North America, the Japanese bank said in a statement. Though on a smaller scale than Mitsubishi UFJ Financial Group’s $3.5 billion deal for UnionBanCal Corp last week, which was seen as providing the Japanese lender with a U.S. base for its M&A dreams, and Tokio Marine’s $4.7 billion bid for Philadelphia Consolidated last month, it’s clear the Japanese are serious about overseas expansion, which is aimed at offsetting slackening growth in the domestic market. Acquisitions by Japanese companies abroad totalled $24 billion in the first half of this year, according to Thomson Reuters data, nearly matching the total for all of 2007.

Deals of the day:

* Investment firm Bay Harbour Management snapped up U.S. apparel chain Steve & Barry’s for $168 million at an auction, the retailer said.

* Polish restaurant operator AmRest has offered 20.2 million zlotys ($9 million) for 11.2 percent of smaller rival Sfinks to boost its stake to 25.5 percent, the company said in a statement.

* Mold Tek Technologies said it has signed a preliminary agreement with the promoters of a U.S.-based firm and its associate firm in India to acquire 100 percent stakes in both of them.

* Japanese communications satellite firm and pay TV broadcaster Sky Perfect JSAT said it would set up a joint venture with U.S. firm Stratos focusing on mobile satellite services.

Fresh capital from wealth fund Temasek Holdings may do plenty to clean up Merrill Lynch’s balance sheet, and has the potential to boost the Singapore wealth fund’s stake in the struggling investment behemoth to 15 percent. That could be an uncomfortable level for U.S. politicians, and breaches a previously informal agreement to refrain from owning more than 10 percent of Merrill, according to a source familiar with the fund. A Temasek spokeswoman said on Tuesday that a portion of the deal is subject to regulatory approval. Citigroup is the other big U.S. bank to have gone to foreign wealth funds for big buckets of bail-out funding. If it ends up having to take more CDO-related write-downs to match the new bargain basement price one assumes Temasek is paying for its new stock of Merrill shares (they aren’t saying what the price might be) this whole thing could turn very political just as the race for the White House enters the final stretch.

British Airways says it is in talks with Spanish carrier Iberia about a potential all-share merger, sending shares in the UK airline up nearly 9 percent. Britain’s flagship carrier said in a statement the discussions had the support of both companies, although it expected it would take several months before terms could be agreed. BA’s chief executive, Willie Walsh, said the move made sense in current market conditions. BA owns 13.15 percent of the Spanish carrier, while Iberia has taken a 2.99 percent direct stake in BA, on top of exposure to a further 6.99 percent through contracts for differences linked to the BA share price. BA said both parties were confident of securing regulatory approval, adding that the European Union had already allowed the duo to cooperate widely.

Other deals of the day:

* Japanese TV and media group Tokyo Broadcasting System said it would spend $195 million to buy a majority stake in retailer StylingLife Holdings from Citigroup’s merchant banking unit in Japan.

* Central European Media Enterprises has bought an 80 percent stake in two Bulgarian television stations for $172 million, expanding its reach in eastern Europe, the company said.

* Kumho Tires is seeking investors to take over a $109 million stake in itself that U.S.-based Cooper Tire & Rubber plans to sell, an official at the South Korean company said.

* Autoliv, the world’s biggest maker of air bags and seat belts, said it had agreed to buy the automotive radar sensors business of Tyco Electronics for $42 million.

* IT and engineering services firm Rolta India said it acquired Chicago-based WhittmanHart Consulting, a division of WhittmanHart Inc.

 Ford’s soon-to-be-signed sale of Jaguar and Land Rover to Tata Motors could bring in as much as $2.65 billion, according to local TV, or $2 billion according to the FT. Though the stage appears to be set, a Tata Group spokesman told Reuters discussions were ongoing. Tata Motors, India’s top vehicle maker maker of trucks and busses, received union backing for the deal and was named the front-runner in January by Ford, which is seeking to shore up its balance sheet and reduce debt.

JPMorgan’s revised takeover offer for Bear Stearns is a “high risk transaction,” Punk Ziegel analyst Richard Bove said after JPMorgan boosted its all-stock offer five-fold to about $10 a share. “What is most disturbing about this deal is that it uses a great deal of Morgan capital to buy a company that is losing market share, in a series of businesses that are declining in size, with a top management team that is best described as sclerotic,” the veteran bank watcher wrote in a note to clients. “Investors believe that JPMorgan is underbidding for Bear Stearns… I do not. … Bear Stearns is a deeply troubled company which would have no value if the Federal Reserve had not stepped in to bail it out.”

China’s state-owned aluminum giant Chinalco - which teamed up last month with Alcoa to buy a $14 billion stake in Rio Tinto - may spend more than $4 billion this year on acquisitions at home and abroad, according to the South China Morning Post. That’s no great pile of investment. BHP has bid $147 billion for Rio. Though the company did not specify targets, it said non-ferrous metals would be the main focus.

Top Chinese chipmaker Semiconductor Manufacturing International Corp said it was in advanced talks to sell shares to a strategic investor, sparking a 16 percent surge in its shares. The news comes one year after media reports that the company hired two investment banks to find a strategic partner in a search that ultimately failed to win a suitor. SMIC’s market capitalization is around $1.1 billion.

Singapore state investor Temasek is close to selling its 42 percent stake in Bank Internasional Indonesia for over $1 billion, but not to HSBC. Europe’s biggest bank dropped out of the race, leaving Malayan Banking, Bank of China and late entrant Kookmin of South Korea to duke it out.