In November 2008, Bank of America exercised an option to increase its stake in China Construction Bank to 19.1%. This was just months after the collapse of Lehman Brothers but the US bank was confident enough to champion its investment in the midst of the financial crisis.
It outlined its plans in a statement: “Bank of America intends to remain a long-term and significant strategic investor in CCB.”
Long-term in the financial vocabulary of today seems to be around three years, as Bank of America’s stake in CCB is now about 1%, after a repeated selling down of its holding
The most recent sale was late last month, with BoA disposing of 10.4 billion CCB H shares, accounting for around 4.14% of the total issued shares, to a number of institutional investors.
The private transaction raised $1.8 billion in profit, said the US bank. This was the fifth sale of CCB stock by Bank of America.
Goldman Sachs also offloaded some of its Chinese banking assets last month, raising $1.1 billion by selling shares in Industrial and Commercial Bank of China.
These deals are part of a larger trend of foreign strategic investors pulling back from the Chinese banks. Since the beginning of 2009, foreign investors have reduced their holdings by $25 billion, according to Bloomberg data, with UBS and Royal Bank of Scotland also big sellers.
Only HSBC’s stake in Bank of Communications has remained stable at around 19%.
Much of the sell-off has been prompted by the need to shore up balance sheets at home. Other factors behind the sales include the limited influence on offer to the strategic investor over their Chinese partners. A single investor from abroad can only hold up to 20% of a Chinese bank’s shares. As a minority shareholder, the investor will always be sitting in the passenger seat.
And at least the holdings can be sold at a profit, which might not be true a few years ahead, if concerns about the potential for rising levels of bad debt at the Chinese banks turn out to be accurate (see WiC130).
But as some foreign lenders retreat from the sector, other institutions are buying in. Singapore’s sovereign wealth fund Temasek has increased its holdings in CCB to 10%, becoming its largest foreign shareholder. There were also Chinese buyers: CITIC Securities, the Social Security Fund, and the State Administration of Foreign Exchange (SAFE) via a special investment vehicle, reports Caixin Century.
Temasek may well be the ideal foreign investor as far as CCB is concerned. “Temasek has never proposed anything at board meetings or in the business decision-making process, nor has it claimed any relevant rights,” a source close to CCB told Caixin Century.
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