Bank of America Capital Shortfall And China Construction Bank18 July, 2011, 23:43. Posted by Zarathustra
Tags: Bank of America, China Construction Bank, Financials
Bank of America (BAC.N), facing with the on-going and never-ending mortgage foreclosures, probably needs more capital and will not be able to raise dividend pay-outs according to Bloomberg. The number which is being thrown around is US$50 billion shortfall on capital. Bank of America share is now down about
3.8% 4.2% in New York below US$10, lowest level in 2 years.
This story, however, as far as investors in Hong Kong/China is concerned, is all about China Construction Bank. It has already been said that Bank of America will be selling China Construction Bank (while the Social Security Fund of China is selling other banks as well) after the lock-up period to boost its capital amid tighter rule (which makes them need another US$50 billion in the first place). Selling China Construction Bank will be more than possible, as the Bloomberg report said:
The bank is weighing the sale of at least part of its $21 billion stake in China Construction Bank Corp., three people briefed on the plans said last month. The sale would simultaneously raise cash and reduce assets that are penalized under the capital rules.
That is to say the action of selling China Construction Bank would raise cash and lower risk-weighted assets.
This will be a bad news for China Construction Bank share price, although it is not quite so clear on whether the market has already discounted the possibility fully. In any case, as I observed earlier, the growth story in the Chinese banking shares has been dead, with Chinese banks shares making new lows after new lows. With more concerns on local government debts in China looming, it is hard to feel upbeat even though the sector has been performing very badly.