tracing bank of america's ownership in one of china's biggest banks
TRANSCRIPT
B of A’s Stake in China Construction Bank
IN ONE CHART
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IntroductionFrom 2005 until 2013, Bank of America owned as much as 19% of China’s then-second biggest bank by assets, China Construction Bank. It turned out to be an incredibly lucrative investment. This chart and the accompanying narrative tellits story.
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2005: B of A buys inBank of America first purchased shares of China Construction Bank in 2005,paying $3 billion for 19.1 billion shares. This gave Bank of America a 9% stakein the Chinese bank, with a five-year option to increase its interest to 19.9%.
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2006: Accounting freezeBecause Bank of America’s shares couldn’t be sold until the third anniversary of CCB’s October 2005 initial public offering, they continued to be valued on Bankof America’s balance sheet at their $3 billion cost basis.
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2007: Carrying value increased to $16.4 billionBy the end of 2007, Bank of America was within a year of being able to sell itsCCB stake. This meant Bank of America could switch to the fair value method of accounting associated with available-for-sale securities. Bank of Americathus increased the position’s carrying value by $13.4 billion.
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2008: Exercise of optionBank of America decided to exercise its option to purchase additional shares in2008. It paid a net $3.3 billion to increase its stake in CCB to 44.7 billion shares,representing roughly 19% of the Chinese bank’s outstanding common stock.
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2009: Sale of initial stakeBy 2009, Bank of America was free to unload its original purchase of 19.1 billion shares (the 25.6 billion shares purchased under B of A’s option couldn’t be sold until 2011). It did so, realizing a $7.3 billion pre-tax gain and thereby reducing itsremaining stake to 25.6 billion shares, or 11% of CCB.
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2010: Fair value accounting for most remaining sharesBy 2010, just like in 2007, Bank of America was within a year of being able tooffload the lion’s share of the 25.6 billion CCB shares purchased under the option agreement. As such, B of A adopted fair value accounting and recorded a $10.5 billion unrealized gain. It also received $535 million in CCB dividends in 2010.
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2011: B of A sells most of remaining stakeBank of America was now free to offload all but two billion shares of its CCB stake -- the latter were still subject to restrictions. It accordingly did so, selling 23.6 billion shares for a pre-tax gain of $6.5 billion. B of A also received $836 million in dividends from CCB in 2011.
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2012: Fair value accounting for final 2 billion sharesAs in 2007 and 2010, the pending expiration of restrictions on the two billionshares still owned by Bank of America allowed it to increase the position’s carrying value from its cost basis of $716 million to the fair market value of $1.4 billion. By this time, Bank of America owned only 1% of CCB.
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2013: Sale of last 2 billion sharesThis proved to be the final year that Bank of America had an ownership interestin China Construction Bank. During 2013, B of A realized a $753 million pre-taxgain after disposing of its remaining two billion shares. All told, Bank of Americaearned nearly $16 billion from its $6.3 billion investment.
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