BofA Exits Chinese, Japanese JVs As It Slashes International Exposure

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Bank of America ( BAC ) 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 2008.

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 America


Bank of America Has Cut Down On Its Investments In China Drastically

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 Everyone

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 Stanley ( MS ). 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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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: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: BAC , C , MS , WFC

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