Bank of America Corporation
) international wealth management units have attracted bidders from
Europe and Canada,
reported on Thursday. The list of bidders includes
Royal Bank of Canada
Credit Suisse Group
). Switzerland-based JULIUS BAER GRP N is also keen on purchasing
some of BofA's non-U.S. wealth management units.
Earlier in April, BofA had announced its plans to divest these
units in Europe, the Middle East, Latin America and Asia (excluding
Japan) in anticipation of receiving about $2 billion.
With the completion of the first round of bidding, BofA is in
the process of informing the short-listed bidders. However, the
sale offer may not seem attractive to many buyers, as the wealth
management businesses normally do not contribute to the equity
capital. On the other hand, the eventual buyer will be rewarded
with BofA's goodwill attached with the business on sale.
Since the financial crisis, wealth management businesses across
the globe have been consolidating as higher expenses and increased
regulations have made these operations less attractive. Likewise,
BofA's primary aim behind selling these units is to further
streamline its operations and concentrate on its core
The units on sale, which were mostly obtained by BofA from its
Merrill Lynch acquisition in 2009, comprise nearly $90 billion
worth of assets under management. However, this division of BofA
has been reporting mediocre results due to inadequate business
BofA has preferred to auction off these units, instead of
divesting them separately. In the auction process, the company will
be able to sell-off the entire operations without too many
complications as it is easier to negotiate and execute the sale.
However, there may not be many potential buyers for these units
that are spread across the globe.
Hence, if BofA divests its international wealth management units
separately, it could turn out to be a more profitable venture.
Though the process is complex, the company would be able to attract
more bids. Additionally, many of the banks from China, Singapore
and South Korea have been trying to expand their wealth management
businesses, and this could be an opportunity for the banks to
improve their market share.
BofA has been actively divesting its non-core and unprofitable
operations since the last two years. The company has been doing so
in order to recover from its acquisition of Countrywide Financial
in 2008, which resulted in losses and lawsuits.
Clearing the stress test authenticated BofA's strong capital
position and its ability to successfully overcome another severe
economic downturn. Though BofA has been battling with a swelling
cost structure and a stressed run-off portfolio, the company's
repeated attempts to improve its balance sheet and capital ratios,
in spite of passing the stress test, is commendable.
Currently, BofA retains its Zacks #3 Rank, which translates into
a short-term Hold rating. Also, considering the fundamentals, we
maintain our long-term Neutral recommendation on the stock.
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