By William Patalon III
Money Morning/The Money Map Report
Bank of America Corp. (BAC) will likely boost its stake in state-owned banking giant China Construction Bank Corp., paying about 36 cents a share (2.46 yuan), or 1.2 times the Beijing-based lender's book value, China's Caijing magazine reported yesterday (Friday), citing unidentified sources.
No timetable or total dollar value for the deal was given. The magazine report was picked up by the Reuterswire service, and by other U.S. media outlets, such as Forbes.com.
To smooth the way for the share purchase by Bank of America, Central Huijin Investment Co. Ltd. – the investment arm of the People's Bank of China that's run by the Ministry of Finance – has asked China Construction Bank to audit its third quarter results using international accounting standards.
Caijing, an influential Chinese-language business-news publication, said it did not know how many shares that Bank of America intended to buy. Construction Bank is already 11% owned by BofA. As part of its strategic-investing agreement with Construction Bank, BofA has had the option to increase its stake at an agreed-upon rate of 1.2 times the China commercial bank's book value, Caijing reported.
Construction Bank's net asset per share jumped 13.26% from a year earlier to 30 cents (2.05 yuan) during the first nine months, according to the lender's unaudited third quarter results.
China Construction Bank (CCB) is a state-owned, full-service . Additionally, the group offers wealth-management, credit-card and stock-brokerage services. It focuses on two key areas:
- Individual banking services, including deposit services, personal loan, long-credit-card services, long card services, housing system reform finance, foreign-exchange services, securities agent and gold business related services.
- And corporate-banking services, which include corporate e-banking, deposits, credit business, services for government agencies, services for non-banking financial institutions, international settlement, international financing, fund settlement and fund custody services.
With its headquarters in Beijing, CCB employs about 298,000 people. It recorded revenue of about $19.07 billion in the fiscal year that ended in Dec. 2006, a jump of 17.8% from 2005. The net profit was $5.83 billion in fiscal 2006, a decrease of 1.6% from 2005.
Central Huijin Investment Co., established in 2003, is the investment company owned by the Chinese government. Central Huijin was created to act as the centralizing structure through which the government of China can operate as a majority shareholder of the country's so-called "Big Four" banks, all of which, obviously, are state owned.
However, Central Huijin does not own shares in the smaller joint-stock commercial banks, as those which are largely owned by China's local governments. The "Big Four" in China are:
- China Construction Bank Corp.
- Industrial and Commercial Bank of China.
- Bank of China.
- Agricultural Bank of China (PINK: ABGEF, ABGEY).
Central Huijin Investment Co. was acquired from China's State Administration of Foreign Exchange by the state-operated China Investment Corp. (CIC) for roughly $67 billion. A so-called "sovereign wealth fund" (SWF), CIC is responsible for managing part of China's record $2 trillion in foreign-exchange reserves. With $200 billion in assets under management, CIC is actually the fourth-largest sovereign fund in the world.
China Investment Corp. officially began operations in Sept. 2007. However, it actually bought a $3 billion stake in U.S. private equity player The Blackstone Group LP. (BX) in June 2007. And it bought a 9.9% stake in Morgan Stanley (MS), worth about $5.5 billion at the time, in December 2007.
Caijing, theindependent, Beijing-based magazine that broke the BofA story, is a financial publication in that's devoted to coverage of companies in China. The title actually means "Finance and Economics Magazine." Caijing says its mission is to have an "independent standpoint, exclusive coverage and unique perspective."
By most accounts, it's been succeeding.
The Wall Street Journal called Caijing "The Leading Finance Publication in China," while Wikipedia said the magazine's "unique perspective and sharp writing have led to it receive enthusiastic responses from financial industry experts and casual individual investors alike."
The magazine's knack for exposing the darkside of the financial world has helped it to establish itself as an independent, "must-read" publication. Other publications have tried to copy its approach and style – and have fallen short. Caijing is China's only magazine that has continued to strengthen its reputation solely through investigative reporting.
News and Related Story Links:
Bank of America may raise stake in CCB – Caijing.
- MarketWatch.com: .
China Construction Bank – SWOT Analysis – New Research Report on Companies and Markets.
Central Huijin Investment Co.
- Money Morning Investigative Series:
Billions in Bank Rescue Funds are Fueling Buyout Deals, and not the Increase in Loans That Would Help Ease the Financial Crisis.
- Money Morning Outlook 2008 Series:
Outlook 2008: Three Ways to Profit From Sovereign Wealth Funds – the "Next Wall Street."
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.