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Bank of America Sells China Construction Bank Rights Offer to Temasek

Bank of America Corp. sold its share of China Construction Bank Corp.’s $9.2 billion rights offer to Temasek Holdings Pte, Singapore’s state investment company, as the U.S. lender boosts capital to meet a pledge to federal regulators.

Bank of America wouldn’t estimate its potential gain from the sale of its rights to buy 1.79 billion CCB shares, said Jerry Dubrowski, a bank spokesman. “The proceeds count towards the commitment we made to raise $3 billion” by Dec. 31 from gains on asset sales, he said today in a phone interview. The bank had accrued $1.9 billion in gains as of Sept. 30.

Bank of America owns 125.58 billion shares in CCB, or 10.95 percent, trailing only the Chinese government’s 57 percent stake, CCB said last week. With a carrying value of $19 billion on Sept. 30, the CCB stake makes up about 15 percent of the Charlotte, North Carolina-based lender’s $126.4 billion in Tier 1 common equity. Temasek is CCB’s third-biggest investor with a 5.65 percent stake.

“It is assumed that Bank of America would like to see its stake go down so it’s not a drag on their Tier 1 common ratio,” Jeff Harte, an analyst with Sandler O’Neill & Partners, said today in an interview. New international rules on minimum capital requirements under review by the Federal Reserve are prompting banks to reduce holdings in other financial-services companies, he said.

CCB, the world’s second-largest lender by market value, said on Nov. 1 it will offer existing investors 0.7 share for every 10 held at 3.77 yuan each in Shanghai and HK$4.38 in Hong Kong. The Beijing-based Chinese bank announced the rights offering in April.

Central Huijin Investment Co., which owns stock in CCB on behalf of the Chinese government, has committed to participating in the rights offer.

Stake Increased

Bank of America in 2005 invested $3 billion for a 9.9 percent stake in CCB before the company’s initial public offering. The U.S. bank later exercised its option to buy an additional 11 percent, paying $9.2 billion.

With losses from U.S. credit card and housing loans mounting, Bank of America last year sold its initial stake in Construction Bank, reaping a pretax gain of $7.3 billion. The bank remains a key strategic investment, Chief Executive Officer Brian T. Moynihan said in a March visit to China.

The decision not to invest in the rights offering “won’t affect positively or negatively our relationship with CCB,” Dubrowski said.

Bank of America’s principal negotiator with the Chinese previously was Gregory Curl, the lender’s former director of planning and strategy. Curl, 62, was a finalist last year to succeed Kenneth D. Lewis as the bank’s CEO and left the company earlier this year to become president of Temasek.

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net David Scheer at dscheer@bloomberg.net.

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