Bank of America is doing all it can to delay the inevitable equity issuance. Reuters has just broken the news that the bank is in active negotiations with Kuwait and Qatar sovereign wealth funds to sell its $17 billion China Construction Bank stake. There are several problems with this approach: first, the petrodollar sovereign wealth funds just lost over 20% of their AUM courtesy of the global equity rout and of the plunge in oil by more than 20% in less than 2 weeks; Second: everyone recalls what happened to Alwaleed when he bought his "Blue Light" citi stake; third: if BAC does indeed sell its CCB stake, it will leave it with zero disposable assets and will have no choice but to approach the equity market. Fourth, the fact that it needs this cash is validation of all the rumors that the bank's capitalization may be urgently strapped very soon, and that today's Berkowitz call was nothing but lies (in typical BAC style); last, since the final cash need when all is said and done, when all the litigation is over and when the NY AG is done with the bank, BAC will need far, far more cash than $17 billion. Which is why any BAC bounce in the AH session should be viewed very skeptically.
More from Reuters:
Bank of America Corp <BAC.N> has held exploratory talks with the principal investment funds of Kuwait and Qatar about selling part of its stake in China Construction Bank <0939.HK>, sources with direct knowledge of the talks told Reuters.
Bank of America, which owns about 10 percent of CCB's <601939.SS> Hong Kong-listed shares and is scurrying to raise capital for its mortgage-scarred balance sheet, will be contractually free to sell the bank shares after Aug. 29. They are valued at about $17 billion
The bank, the largest in the US by assets, is likely to sell half its stake in order to shore up its Tier 1 capital. Analysts believe Bank of America needs about $50 billion to meet new capital requirements
Talks about the Chinese bank have been held with other investors in addition to the Kuwait Investment Authority and the Qatar Investment Authority, the sources said
It is unclear if any agreement with the sovereign wealth funds or other investors have been cemented.
Bank of America, whose shares have fallen 20 percent in the past week, did not mention the China investment during a widely followed conference call that top executives held Wednesday with thousands of investors. Chief Financial Officer Bruce Thompson said on the call that asset sales are being considered to boost capital.
"These stakes will be sold eventually," one source said of the Chinese bank shares. "They have been shown previously to funds who matter."
For those who are actually confused what this news means, this is precisely what Lehman started doing a few months ahead of its own bankruptcy filing.
We look forward to one of two outcomes: i) the spin off of CFC (to the Fed and/or the GSEs), making BAC less than TBTF, or ii) the implosion of the entire monolith. At least the company's Bryant Park NY HQ should fetch about $0.25 per share.