According to a
CNBC
report,
Bank of America Corporation
(
BAC
) is all set to vend its international wealth management unit to
Swiss private bank JULIUS BAER GRPN. The deal is anticipated to
fetch BofA about $1.5 to $2 billion.
According to the source, the company will retain the Japanese
division of its overseas wealth management wing and will continue
to manage its international clients through its domestic offices.
The wealth management wing handles around $90 billion of funds
primarily belonging to the high-net-worth clients.
Earlier this year, BofA was looking for possible bidders to
offload its international wealth management unit. The list of
bidders included
Royal Bank of Canada
(
RY
) and
Credit Suisse Group
(
CS
). The reason behind its divestiture plan was the inability of this
unit to generate meaningful profits.
Of late, BofA is in the process of selling those units, which do
not fit into its strategic setting. By doing so, it expects to
concentrate more on its core business, reduce expenditure and raise
additional liquidity. The need for extra liquidity stems from the
new Basel III regulations that require banks to maintain more
liquidity in order to withstand severe financial crisis.
Moreover, divesting unproductive units could help BofA
rationalize its operations and work towards building a sound
capital position. The deal is likely to be the largest in the
wealth management industry after
ING Groep NV
's (
ING
) sale of its private banking assets to Julius Baer and Singapore
based Oversea-Chinese Banking Corporation Limited for $1.9 billion
in 2010.
Earlier in March, BofA sold its entire Irish credit card
operations to
Apollo Global Management LLC
's (
APO
) fund affiliate, Apollo European Principal Finance Fund I (Apollo
EPF). The deal is pending for further regulatory approvals. It had
also sold its Spanish consumer credit card operations and Canadian
credit card portfolio to Apollo and
The Toronto-Dominion Bank
(
TD
), respectively in 2011.
Conclusion
BofA's constant endeavor to reduce the number of unproductive
operations reflects its strategy of overcoming the sour acquisition
of Countrywide Financial in 2008, which bought along a deluge of
losses and lawsuits. In order to match the recovery pace of its
peers, the company is narrowing its worldwide presence by actively
engaging in divestiture of its international units.
The Federal Reserve's new proposed financial rules, which
require banks to maintain a robust 7% total tier 1 ratio, is
pressurizing banks to improve their capital positions. Thus,
selling off unprofitable units and focusing on core business is
becoming necessary for these banks.
Currently, BofA retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term Neutral recommendation on the stock.
APOLLO GLOBAL-A (APO): Free Stock Analysis
Report
BANK OF AMER CP (BAC): Free Stock Analysis
Report
CREDIT SUISSE (CS): Free Stock Analysis Report
ING GROEP-ADR (ING): Free Stock Analysis Report
ROYAL BANK CDA (RY): Free Stock Analysis Report
TORONTO DOM BNK (TD): Free Stock Analysis
Report
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