China Construction Bank to Extend Tie-Up with BofA

Date:2011-08-23wangxin  Text Size:

China Construction Bank, the world's No. 2 bank by market capitalization, said it has extended its tie-up with Bank of America-Merrill Lynch until the end of next year and is in talks to lengthen cooperation for another 5 years.

The nature of the extended tie-up between the two banks was not immediately clear, but the remarks come after sources told Reuters that Bank of America(BofA) is in talks to sell part of its $17 billion stake in China Construction Bank.
   
At a CCB press conference held a day after the bank posted a 31 percent jump in first-half profits, top executives from the bank tried to dispel investor concerns about BofA's planned divestment.  

CCB executives also said the bank does not plan to cut its dividend or raise funds through equity or bond sales, but said the CCB intends to add another 80 billion yuan ($12.5 billion) to its tier 2 capital ratio over the next 2-3 years.
   
They said BofA, which is scurrying to raise funds to repair its mortgage-scarred balance sheet, is happy with the returns from its CCB investment. Guo Shuqing, chairman of CCB, said BofA has not told CCB that it plans to sell any of its stake.
   
But CCB executives noted that cooperation between the two banks does not hinge on BofA retaining its stake in the Chinese bank.
   
BofA presently owns 25.6 million CCB shares, including 23.6 million that come out of a lock-up on Aug 29. It is free to sell the remaining shares in 2013.
   
Sources told Reuters earlier this month that BofA has held exploratory talks with the principal investment funds of Kuwait and Qatar about selling part of its CCB stake.
   
On CCB's loans to China's heavily-indebted local governments, CCB executives said it has lent 580 billion yuan to local governments.
   
Of this pool, seven percent have cash flows or provisions that cover half or less of the loans, CCB bankers said.
   
CCB said on Sunday that first-half profit hit 92.8 billion yuan on the back of growth in non-interest income such as financial advisory services that generate fees and commissions. Investors had expected profits of 92.3 billion yuan.  
   
But CCB shares lagged the broader Hong Kong market on Monday, ending down 1.3 percent, compared with a 0.5 percent rise in the Hang Seng Index.
   
Non-performing loans stood at 1.03 percent at the end of June, down from 1.09 percent in the first quarter.
   
That bucks expectations that non-performing loans may have spiked as China's economy slows and some local governments struggle to repay their debt after a spending binge following the 2008 financial crisis.
   
Banks in China have been under pressure to control lending, and rivals such as Industrial and Commercial Bank of China have already announced lower lending targets this year.

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