Bank of America said Monday it was selling about 13 billion common shares, or 5%, of China Construction Bank in to a group of investors for some $8.3 billion in cash and an after-tax gain of $3.3 billion.
The transaction is expected to close in the third quarter of 2011 and is subject to customary closing conditions. After the sale, Bank of America will continue to hold a 5% stake in CCB.
“Our partnership with China Construction Bank has been mutually beneficial,” said BofA CEO Brian Moynihan in a press release.
According to BofA, the two banks are discussing a potential expansion and extension of their existing strategic-assistance agreement.
“This sale of approximately half of our shares of CCB stock is expected to generate about $3.5 billion in additional Tier 1 common capital and reduce our risk-weighted assets by $7.3 billion under Basel I,” said BofA CFO Bruce Thompson in a statement. “This month alone, through non-core asset sales and other actions, we expect to generate approximately $5.8 billion in additional Tier 1 common capital and reduce risk-weighted assets by approximately $16.1 billion under Basel I.”
The transaction was solely managed by Bank of America-Merrill Lynch, and BofA’s stock (BAC) traded up about 5% early Monday to $8.15 a share.
On Thursday, BofA said it was selling 50,000 shares of preferred stock with a liquidation value of $100,000 per share and a dividend that pays 6% per year to Berkshire Hathaway (BRK-A), which is led by Warren Buffett.
The troubled bank’s value has dropped sharply this year due to concerns over its need to raise capital and liabilities tied to subprime mortgages. (Its shares traded above $15 in mid-January.)
As part of the deal, Berkshire Hathaway will also receive warrants to purchase 700 million shares of Bank of America common stock at an exercise price of about $7.14 per share. The total purchase price for the preferred stock and warrants to be received by Bank of America, which bought Merrill Lynch in early 2009, is $5 billion in cash.
Late last year, Morgan Stanley (MS) sold its 34% investment in China International Capital Corp. Limited (CICC). That added a pre-tax gain of $668 million, or $0.17 a share to its fourth-quarter 2010 results.
Morgan Stanley then formed a joint venture with China Fortune Securities Co.