Bank of America Sells Stake in China Construction Bank to Shore Up Capital Base

Bank of America Corp. is undergoing a significant restructuring, selling a substantial portion of its stake in China Construction Bank Corp. to raise capital and comply with new international regulations. The move comes after a $5 billion investment from Warren Buffett's Berkshire Hathaway Inc. and a proposed $8.5 billion mortgage-bond settlement with investors. The bank has faced significant challenges, including losses from its 2008 purchase of Countrywide Financial Corp. and declining revenue in the wake of new regulations.

Key Takeaways:

• Bank of America will sell 13.1 billion shares in China Construction Bank for $8.3 billion, reducing its ownership stake from 10% to 5%.
• The sale will generate a gain of $3.3 billion for Bank of America, further bolstering its capital base.
• The bank has faced significant challenges, including losses of $15.3 billion in the last four quarters and declining revenue of 34% in the first half of 2011.
• The sale is a key component of Bank of America's strategy to comply with new international regulations requiring banks to hold more cash.
• The proposed $8.5 billion mortgage-bond settlement with investors may be affected by the Federal Deposit Insurance Corp.'s objection, joining investors and states challenging the agreement.

Statistics:

• Bank of America will sell 13.1 billion shares in China Construction Bank.
• The sale will generate $8.3 billion in revenue for Bank of America.
• The gain from the sale will be $3.3 billion.
• Bank of America has lost $15.3 billion in the last four quarters.
• Revenue fell 34% in the first half of 2011 compared to the previous year.
• The bank's cash and cash-equivalent securities totaled $402 billion at the end of the second quarter.

Sources:

• Eileen AJ Connelly (Associated Press)
• Bloomberg News