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The sale of a stake in China Construction Bank held by Bank of America Corp was prompted by the latter's capital shortage rather than concerns over the Chinese bank’s profitability, said its spokesperson on Wednesday, one day after the US bank cleared 2 billion Hong Kong-listed shares of CCB for about HK$11.7 billion ($1.47 billion).
Bank of America told CCB that it has been downsizing the Chinese bank's H-shares to pump up its assets because of stricter requirements on capital quality by US banking regulators, said the spokesperson.
The two banks will continue their partnership until 2016, based on a strategic agreement renewed in 2011.
The American bank has been reducing its shares in CCB since 2009, gaining nearly HK$210 billion, 1.2 times its purchase costs.
CCB's H-shares fell by 1.35 percent at the close of trading Wednesday. Other major commercial banks were hardly affected by the sell-out. Bank of China, Agricultural Bank of China and Bank of Communications Co saw increases of 0.29 percent, 0.58 percent and 0.19 percent, respectively.
Bank of America's move did not come as a surprise, said Guo Tianyong, a professor at Central University of Finance and Economics.
"Foreign capital in China's banking sector has been receding for quite a while because the economic slowdown and financial reforms have hampered the growth potential of China's State-backed banks."
Wang Hongzhang, chairman of CCB, said at the half-year earnings news conference that Bank of America's consecutive selling of its stocks was to cushion the effect of the subprime lending crisis.
Experts cited other possible reasons for the US bank's exit.
"The investment bank probably believes that CCB's performance has reached its peak," said Zhou Kunping, an analyst at Bank of Communications. "In that case, now would be the best time to clear the stakes."
Bank of America, as an investment bank, may not have aimed for long-term investment when it bought CCB's shares in 2005, Zhou added, particularly when it is unlikely to have a dominant share in the bank since stakeholders in banks throughout the world are usually highly diversified.
Bank of America's exit from CCB marks the end of an era when foreign stakeholders held a prominent presence in major Chinese banks.
A host of overseas banks, including Goldman Sachs, Citigroup, Morgan Stanley, UBS AG, among others, bought into Chinese banks before they went public.
Questions:
1. Which American bank sold its stake in China Construction Bank?
2. What is thought to be the reason?
3. When did BofA buy CCB shares?
Answers:
1. Bank of America Corp.
2. BofA’s capital shortage.
3. In 2005.
About the broadcaster:
Nelly Min is an editor at China Daily with more than 10 years of experience as a newspaper editor and photographer. She has worked at major newspapers in the U.S., including the Los Angeles Times and the Detroit Free Press. She is also fluent in Korean.