Bank of America (
) continues to steam ahead on the implementation of Project New
BAC, with the bank selling its stakes in a Chinese and a Japanese
joint venture (JV) in the last two weeks. Starting with the sale of
its stake in its JV with the China Construction Bank (CCB) in
the last week of November, Bank of America followed up by freeing
itself of another JV with Mitsubishi UFJ (MUFJ) Financial
Group earlier this week. The back-to-back divestments are
indicative of the bank's focus over recent years on getting its
business model back into shape by cutting down on all the flab it
accumulated over the years leading to the economic downturn of
We maintain a
$10 price estimate for Bank of America's stock
, which is about 5% below the current market price.
See our full analysis for Bank of
Bank of America Has Cut Down On Its Investments In China
Bank of America's decision to exit its joint venture with CCB is
in-line with its strategy of exiting investments internationally.
The bank had a 24.9% stake in the $720 million joint venture
- CCB Financial Leasing Corp - while CCB held the remaining
stake. While the terms of the stake sale aren't available to the
public, we believe CCB should have paid back close to $180 million
that Bank of America had invested in the business.
Incidentally, Bank of America's biggest investment in China was
its stake in CCB, of which it held around 25.6 billion shares
(representing a 10% stake) at the end of 2010. The bank sold
just over 13 billion CCB shares last August (see
Bank of America Scrambling to Ease Investor Concerns
) and within three months sold another 10.3 million shares
(see Bank of America Sells More of CCB Stake to Shore up Balance
Sheet) to raise a total of almost $15 billion.
And The Stake Sale To MUFJ Makes Things Easier For
Merrill Lynch formed the private banking joint
venture, Mitsubishi UFJ Merrill Lynch PB Securities, with
Japan's biggest bank holding company MUFJ in 2006 with a 49%
stake. Since then, the recession resulted in both parties
realigning themselves - with Merrill Lynch being acquired by Bank
of America and MUFJ grabbing a 22% stake in competitor Morgan
). MUFJ has been keen on strengthening its relationship with Morgan
Stanley over recent years.
The deal between Bank of America and MUFJ was therefore on the
books for quite some time. Bank of America is believed to have
pocketed 40 billion yen ($480 million) as part of this deal, which
will result in a small reduction in the bank's wealth management
client balances (shown in the chart above) for the year.
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