BankAm sells China Construction Bank stake to raise $34 billion

12 May 2009

With US regulators pressuring banks to raise their capital under the Obama administration's stress tests, some banks have started selling assets to raise money. Bank of America has reportedly sold about 5.8 per cent of its stake in China Construction Bank Corp for about $7.3 billion according to sources close to the bank.

The tests are a key element of the Obama administration's plan to stabilise banks and the US government has spent around three months conducting stress tests to determine their revenue, losses and capital needs.

Bank of America (BofA) was expected to top the list of banks needing capital infusion when the US treasury announced its long awaited ''stress test'' results.

The sources say that investors represented by Hopu Investment Management Co and Tesmasek Holdings Pte bought 13.5 billion shares sold by Bank of America. The sources declined to be indentified as they are not authorised to discuss such matters publicly. The shares were bought at HK$4.20 apiece, 14 per cent below yesterday's closing price the sources said. However, Bank of America spokeman Robert Stickler declined to comment.

The sale will bring the bank closer to the $33.9 billion that it needs to raise following stress tests of US banks. The Charlotte, North Carolina-based company, as also some foreign firms, such as UBS AG and Royal Bank of Scotland Group Plc have sold shares in Chinese lenders they acquired over four years ago, in the wake of their finances being depleted by credit-market losses.

Analysts say that the sale would only amount to a small step and there is still a long way to go for the bank to meet the target.