Bank of America Corp. will almost double its three-year-old stake in China Construction Bank Corp., three weeks after being awarded $15 billion from the U.S. government to thaw frozen credit markets.
Bank of America, which is buying Merrill Lynch & Co., will boost the stake in China's No. 2 bank to 19.1 percent from 10.8 percent, the Charlotte-based lender said Monday. It will buy shares from China SAFE Investments Ltd., a state investment arm that is the Beijing-based bank's biggest stakeholder.
Bank of America isn't funding the purchase with proceeds from the government's Troubled Asset Relief Program, or TARP, said spokesman Scott Silvestri. Merrill received $10 billion through the $250 billion Treasury bank-rescue package.
“This is falling closely on the heels of their receiving TARP money, which was intended to spur lending in the U.S. or have bigger, stronger banks buy the failing banks,” said Jaime Peters, an analyst at Morningstar Inc. in Chicago. “But neither of these things is happening.”
Bank of America first invested in China Construction in June 2005, buying a $3 billion stake before the lender was publicly listed. It invested another $1.9 billion in June. The value of its holding almost tripled, to $14.5 billion, as of Sept. 30, a regulatory filing showed.
Silvestri declined to say how much Bank of America will pay to increase its stake. The transaction, to be completed by the end of November, will raise its holdings to 44.7 billion shares.
The Chinese news agency Xinhua reported that the bank will pay the equivalent of 36 U.S. cents a share, representing a 40 percent discount to the Chinese bank's closing price in Hong Kong on Monday. Those terms suggest Bank of America would pay as much as $7 billion to increase the stake.
Bank of America plans to be “a long-term and significant strategic investor in CCB,” the U.S. lender said in a statement. The new shares can't be sold until Aug. 29, 2011, without the Chinese bank's consent.
Analysts and politicians should focus on how both sides can benefit from the deal, said Daniel Rosen, principal of Rhodium Group, a New York firm that advises companies on overseas investments. “People should be delighted that Bank of America is thinking long-term about its options and isn't just barricaded in their shack out in the woods,” he said.
Bank of America's shares dipped to $15.03 on Monday, more than 8 percent for the day, hitting the lowest level since the mid '90s. The shares are down 35 percent from a month ago and 66 percent from a year ago, when they were trading around $45. Staff writer Christina Rexrode contributed.