China Construction Bank (CCB), the mainland's second-largest bank by market capitalisation, may see further share price weakness following reports that Bank of America (BofA) plans to sell some of its equity in the lender. But analysts say such a sale could end up benefiting both parties.
The New York Times reported yesterday that BofA, which owns 10.64 per cent of CCB, intended to halve its stake as early as this week, and was in talks with Asian and Middle Eastern sovereign wealth funds. BofA declined to comment.
The sale would net BofA nearly US$10 billion, the Times said. The news comes days after Warren Buffett's Berkshire Hathaway made a US$5 billion investment in BofA.
CCB president Zhang Jianguo said during the bank's interim results briefing last week that BofA had said nothing about divesting its stake. Zhang said BofA had confirmed that it would hold no less than five per cent of the mainland lender's shares.
BofA had paid US$2.5 billion for a nine per cent stake in CCB ahead of the lender's initial public offering in August 2005. The purchase was subject to a lock-up period, which expires tomorrow. BofA had pledged not to sell any of its CCB shares during the period. Of the nearly 25.6 billion CCB shares that BofA owns, the expiration of the lock-up period will affect about 23.6 billion.
Analysts said if BofA was selling down its stake in CCB, that had more to do with its own capital needs than CCB's operations. However, investors have been worried about the asset quality of mainland banks because of their loan exposure to local government-backed projects of doubtful commercial merit.