Bank of America Corp., the second-largest U.S. bank, has agreed to pay $2.5 billion for a minority stake in China Construction Bank, sources said on Friday, marking the largest single foreign investment in China's banking sector.
Bank of America has been looking to expand abroad after reaching the 10 percent maximum share of deposits in its home market. China Construction, the country's biggest property lender, was eager to sign up a foreign investor ahead of a planned $5 billion IPO later this year.
Bank of America's purchase would account for 7 to 8 percent of China Construction's expanded share capital after its planned IPO overseas, or 9 percent based on its current share capital, the sources told Reuters.
The Wall Street Journal, citing an unnamed person familiar with the negotiations, reported that Bank of America has committed to invest another $500 million when China Construction lists.
Kenneth Lewis, Bank of America's chief executive, will on Friday sign the agreement in Beijing with China Construction Bank Chairman Guo Shuqing, the newspaper said.
Chinese state banks are angling for foreign investment to bring credibility to an industry tarnished by loan fraud and corruption.
The country has resorted to bailing out several institutions awash in bad loans to help create a sound banking system.
HSBC Holdings Plc is the biggest such investor so far, having paid $1.75 billion last year for 19.9 percent of Bank of Communications.
Bank of America spokesman Bob Stickler declined to comment. A China Construction spokesman in New York said he had no details about a possible Bank of America stake.
Growth outside U.S.
Lewis has needed to look outside the United States to expand in retail banking.
His $48 billion acquisition in April 2004 of FleetBoston Financial Corp. gave Bank of America about 10 percent of all U.S. deposits, the maximum allowed.
"Over the interim time frame, the most likely thing that we would consider would be some strategic investment in Asia or China that would look like Santander," Lewis said on May 4.
Bank of America in 2002 paid $1.6 billion for a 24 percent stake in Mexico's Grupo Financiero Santander Serfin.
Construction bail-out
China Construction this month said pre-tax profit rose 34 percent last year to $6.1 billion. Analysts, though, said bad loans remained a worry.
China Construction received in late 2003 a $22.5 billion government bail-out that let it write off many bad loans. It has received a $1.87 billion tax break for 2004 to help bolster its balance sheet, an industry source said on Monday.
