BofA’s China Stake Sale Is Better For Holders Than Buffett (BAC, BRK-A, BRK-B, JPM, WFC, XLF, FAS)

Print Email

Bank of America Corp. (NYSE: BAC) raised $5 billion in cash from Warren Buffett last week, and the bank announced this morning that more cash is on the way from a sale of 13.1 billion shares in China Construction bank. BofA says that it will generate about $8.3 billion from the sale and net out an after-tax gain of about $3.3 billion.

BofA owned a 10% stake in the bank and the value of that stake is estimated to be $17 billion. We noted two weeks ago that potential buyers could include the sovereign wealth funds of Qatar and Kuwait.  And this sale was rumored again late last week.  BofA did not reveal the buyers specifically, saying only that the sale was a “private transaction with a group of investors.” The sale is believed to have been done with sovereign wealth funds and institutions in the US, China, Malaysia, and the Middle East.

BofA is trying to boost the bank’s shares again as it bolsters its Tier 1 capital. CEO Brian Moynihan noted that the bank reduced its risk-weighted assets by $7.3 as a result of this sale. He also said that in the last month BofA’s asset sales generated about $5.8 billion in additional Tier 1 capital and reduced the bank’s risk-weighted assets by about $16.1 billion.

BofA made a nice profit on an investment of $3 billion for its full 10% stake at the time of the Chinese bank’s IPO in 2005. As a core investor, BofA agreed not to sell most of its 25.6 million shares until August 29th of this year.

BofA’s shares have risen more than 3.5% in the first half hour of trading this morning, to $8.04, in a 52-week range of $6.01-$15.31.

The SPDR Financial Select Sector Fund (NYSE: XLF) is up more than 2.5%, at $13.09, in a 52-week range of $11.81-$17.20. The Direxion Daily Financial Bull 3X Shares fund (NYSE: FAS) is up nearly 7%, at $14.69, in a 52-week range of $11.20-$34.29.

Paul Ausick