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BofA to cut stake in Chinese bank to raise capital

August 29, 2011 | 11:31 am

Bank of America in Shanghai
Pushing ahead with its plan to raise capital, Bank of America Corp. has agreed to sell half of its investment in a Chinese bank for $8.3 billion in cash.

The sale of 13.1 billion shares to a group of private investors would cut Bank of America's stake in China Construction Bank to 5% from 10% and raise $3.3 billion after taxes, the bank said Monday. Despite the sale, BofA Chief Executive Brian Moynihan said the companies are discussing an expansion of their "mutually beneficial" strategic ties.

New U.S. and international regulations are pressuring banks to increase their capital cushions against losses. Critics contend that Bank of America needs more than other big banks because its exposure to mortgage losses is so high as a result of its purchase of high-risk lender Countrywide Financial Corp. in 2008. 

Moynihan has maintained that the bank can cover its needs by selling non-core assets, cutting costs and retaining earnings. Finance Chief Bruce Thompson said Monday that BofA raised about $5.8 billion in August.

Despite the assurances, Wall Street had been hammering Bank of America until investor Warren Buffett came to the rescue. BofA, a $50 stock for much of 2007, had tumbled to $6.30 last week before Buffett announced that his Berkshire Hathaway would invest $5 billion in the bank.

Bank of America stock closed last week at $7.76 a share, and rose another 47 cents, or 6%, to $8.23 in Monday afternoon trading in New York.


Moynihan: Bank of America turning corner on Countrywide woes

Doubts drag down Bank of America's stock

Warren Buffett tosses Bank of America a $5-billion lifeline

-- E. Scott Reckard

Photo: A Bank of America branch in Shanghai, China. Credit: Aly Song / Reuters