May 19 (Bloomberg) -- Bank of America Corp. agreed to sell its entire stake in Itau Unibanco Holding SA, Brazil’s largest bank by market value, in a transaction that partly fulfills a pledge to boost capital by $3 billion by June 30.
Bank of America will sell 188.4 million Itau preferred shares through a secondary offering, the Brazilian bank said yesterday in a regulatory filing. Itau’s parent company will also buy 56.5 million common shares in the lender from Bank of America. The transaction’s total value is about $4.4 billion, said Bank of America spokesman Jerry Dubrowski.
Chief Executive Officer Brian Moynihan pledged at Bank of America’s April annual meeting that the lender would preserve capital to avoid future government bailouts. The sale will give Bank of America, the largest U.S. lender by assets, funds as it adds employees and services at existing overseas operations including Merrill Lynch & Co., acquired in January 2009.
“They are adequately capitalized in terms of survivability, but in a very distressed environment it’s another question if investors would view it as a safe haven,” said Sean Ryan, an analyst at Jesup & Lamont Capital Markets in New York. “If you believe the recovery is taking hold and gathering steam, then there isn’t too much pressure on them.”
Bank of America of Charlotte, North Carolina, gained 13 cents to $16.08 at 10:47 a.m. in New York Stock Exchange composite trading. Itau common shares lost as much as 6.8 percent, the biggest drop in a year, in Sao Paulo trading.
$1.2 Billion Short
Bank of America repaid $45 billion in Troubled Asset Relief Program funds in December after raising more than $19 billion in the largest share sale by a U.S. company since at least 2000. As part of the repayment, the lender pledged to sell assets to produce a net gain of $3 billion by June 30.
The cost of Bank of America’s investment in Itau Unibanco was $2.6 billion as of March 31, according to a regulatory filing. That would leave the bank with a $1.8 billion gain, about $1.2 billion short of the $3 billion pledge, said Jaime Peters, an analyst at Morningstar Research.
Bank of America is reviewing other potential asset sales, Dubrowski said, declining to specify. The April sale of its Columbia mutual funds to Ameriprise Financial Inc. isn’t likely to produce a substantial gain, Peters said.
The fair market value of Bank of America’s 11 percent stake in China Construction Bank exceeded its cost by more than $11 billion as of March 31, while its 34 percent holding in BlackRock Inc. was $4.1 billion above the cost, according to the regulatory filing.
“There’s no doubt they can raise the additional money,” Peters said.
The preferred shares would be valued at 6.59 billion reais ($3.62 billion) based on Itau’s closing price yesterday of 34.99 reais. Itausa - Investimentos Itau SA, Sao Paulo-based Itau’s parent company, said it will sell 1.4 billion reais in local bonds to pay for the common stock.
Bank of America acquired 7.4 percent of Banco Itau Holding Financeira SA in 2006 after agreeing to sell to the Brazilian bank its units in Brazil, Chile and Uruguay. The secondary offering of the Itau preferred shares may be concluded in the week of May 31, Itau and Itausa said in the statement.
The sale doesn’t reflect any concerns over Brazil’s economy, Dubrowski said. “We determined it was a noncore asset,” he said. “With the acquisition of Merrill Lynch we have a significant presence in Latin America and Brazil and this doesn’t change that.”
Guilherme Magalhaes, a spokesman for Itau in São Paulo, declined to comment on the transaction, via an e-mailed statement.
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