Bank of America, tycoon sell China bank stakes

By Tony Munroe

HONG KONG (Reuters) - Bank of America (BAC.N), coping with tough economic conditions, raised $2.83 billion (1.9 billion pounds) by selling part of its stake in China Construction Bank (601939.SS), and Hong Kong's richest tycoon sold a $500 million stake in rival Bank of China (3988.HK).

Shares in China's big banks skidded on Wednesday after the sale by the largest U.S. bank by assets. Investors expected further sales in the face of slowing earnings growth at mainland lenders and the lapse of lock-up provisions restricting sales.

China's three largest banks had attracted big strategic investments from Western financial groups at the time of their initial public offerings. Some of those banks, including Royal Bank of Scotland (RBS.L), are now under pressure to sell as the global financial crisis ravages the banking industry.

Bank of America sold more than 5.62 billion Construction Bank shares at HK$3.92 apiece, according to a term sheet obtained by Reuters. The sale reduces the bank's stake in the Beijing-controlled lender to 16.6 percent from 19.1 percent.

The terms represented a 12 percent discount to Construction Bank's Tuesday closing stock price. Bank of America realised a profit of about $1.13 billion, based on Construction Bank's IPO price in 2005. The U.S. bank acquired its initial stake ahead of the IPO.

"The news has been expected, but investors will still take it hard because (Bank of America) will most definitely sell more," said Francis Lun, general manager with Fulbright Securities in Hong Kong. "They need the money."

Bank of America is raising money amid a broad downturn for U.S. banks and as it absorbs Merrill Lynch & Co, which it bought on Jan 1.

The bank and Merrill were awarded a $25 billion infusion as part of the U.S. government's $700 billion banking industry bailout, but some analysts believe more capital may be needed.