After it was disclosed that Bank of America's firesale of its China Construction Bank is not going as well as expected, Moynihan's company, which was trounced by the market in the past week, continues to shed assets, this time offloading its $8.6 billion Canadian credit card portfolio to TD Bank for an unknown amount, a deal about which all BAC said was that the "transaction is expected to have a positive impact on the company's Tier 1 common and tangible common equity and the respective ratios." So it may also have a negative impact? That's encouraging. This news follows earlier disclosure that BAC has sold its UK and Ireland credit card business. Unfortunately for BAC shareholders, as long as the CFC bad bank is not nationalized by the Fed (sending its tracking CDS to parity with US default risk) such incremental asset sales will continue. Which also means that as BAC retains the non-performing assets, it is forced to sell its cash-generating trophies. At what point will there be nothing left of BAC but a husk that promises to everyone that going forward its Tier 1 ratio will be over 6% for real this time. And how long until the next Reps and Warranties lawsuit against BAC's mortgage handling practices?
From the press release:
Bank of America Corporation announced today that it has agreed to sell its credit card business in Canada to TD Bank Group and that it will exit its credit card businesses in the U.K. and Ireland.
"Our strategy is clear: We have been transforming the company to deliver the franchise to our core customer groups, and building a fortress balance sheet behind that," said Chief Executive Officer Brian Moynihan. "While the credit card remains a fundamental core product for our U.S. customers, an international consumer card business under another brand is not consistent with that strategy."
The move also continues the transformation of Bank of America's credit card business, following the sale of the U.K. Business Lending portfolio, the agreement to sell the Spanish card business, and the company's continued exit from the depository institution affinity credit card business with the recent sales of the Regions and Sovereign credit card portfolios.
Sale of Canadian Card Business
Bank of America and TD Bank Group announced a definitive agreement by which TD Bank Group has agreed to purchase Bank of America's $8.6 billion Canadian credit card portfolio as well as certain other assets and liabilities.
The transaction is expected to close in the fourth quarter, subject to regulatory approval. The transaction is expected to have a positive impact on the company's Tier 1 common and tangible common equity and the respective ratios.
The transaction is also expected to result in a modest increase in tangible book value per share, which has grown 12 percent from January 1, 2010 to June 30, 2011(1).
At June 30, 2011, Bank of America's tangible common equity ratio was 5.9 percent, up from 5.1 percent at January 1, 2010(1), and its Tier 1 common equity ratio was 8.2 percent, up from 7.1 percent at January 1, 2010. Over the same period, risk-weighted assets are down from $1.56 trillion to $1.39 trillion, and global excess liquidity sources have nearly doubled from $214 billion to $402 billion.
European Card Business
Bank of America manages one of the largest credit card businesses in Europe, with portfolios in the U.K. and Ireland. Combined, these businesses have $19 billion in credit card loans and more than 4,000 employees.
Spain Card Business
Bank of America signed a definitive agreement on August 3, 2011 to sell the Spain card business to Apollo Capital Management, Inc.
U.K. Business Lending
Bank of America sold its $200 million portfolio of small business card loans to Barclays in April 2011.
(1)Tangible book value and tangible common equity are non-GAAP measures. For reconciliation to GAAP, please refer to the company's second quarter 2011 and fourth quarter 2010 earnings materials.