Bank of America nets $3.3 billion on CCB sale

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Bank of America Corp. ( BAC ) took a profit of $3.3 billion after selling half of its massive stake in the China Construction Bank Corp., to unspecified buyers for a total price of $8.3 billion.

The North Carolina-based bank will retain a 5 percent stake in the Chinese lender.

It's pretty clear that the move is based on a perceived need for the U.S. Bank to raise capital. Indeed, chief financial officer Bruce Thompson said in a press release that the "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."

Over the course of the last month, BAC shares plumetted from $10 to as low as $6, driven downwards by investor fears about the bank's equity and the possible losses it could sustain on a massive portfolio of mortgages acquired when Bank of America bought Countrywide. Some aid came to the bank when Warren Buffett agreed to invest $5 billion in BAC preferred shares through Berkshire Hathaway (BRK.A), an action very similar to his massive investment in Goldman Sachs ( GS ) during the depths of the financial crisis.

That lit a fire under the bank's stock over the last week, as it surged to close at $8.11 on Monday. 

Now that the U.S. bank has reduced its stake in the Chinese bank, CCB shares will likely have a fair bit of upward momentum, as investors will be less concerned about a massive sale diluting their market value. 

For American investors, the bigger question is how 'safe' this makes Bank of America. It's undoubtedly a much-needed boost to the bank's reserves of cash, but trouble still looms over the horizon. 

Bloomberg reports that the Federal Deposit Insurance Corporation has formally objected to a proposed $8.5 billion settlement that Bank of America has negotiated with investors who lost money in mortgage-backed assets created by Countrywide. The FDIC said it doesn't have enough information to properly assess the settlement, which was reached with major investors like Blackrock ( BLK ) and Bill Gross' Pacific Investment Management Co. (PIMCO).

If the deal is struck down, it will become a massive headache for Bank of America, exposing it to fresh losses. 

It's now apparent that buying Countrywide was one of the worst investments of all time.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: News Headlines , Banking and Loans , US Markets

Referenced Stocks: BAC , BLK , GS

Daniel Pereira


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