Bank of America Corp. plans to sell up to $2.8 billion of China Construction Bank Corp. shares, less than a month after scrapping an earlier attempt to raise money from its three-year-old stake. China Construction dropped 5.8 percent in Hong Kong as of the 12:30 p.m. break, compared with a 0.5 percent decline for the benchmark Hang Seng Index. Bank of America is selling 5.62 billion shares in China’s second-largest lender at HK$3.92 apiece, a 12 percent discount to yesterday’s closing price, according to a sales document obtained by Bloomberg News. The largest U.S. bank is trying to take advantage of almost $14 billion of paper profits from its China Construction stake, after paying about $33 billion to take over Merrill Lynch & Co. Bank of America canceled a sale of China Construction shares in December partly because of concerns that Chinese law might force it to forfeit any profit, people familiar with the matter said. “It’s smart for Bank of America to take some profits,” said Sean Ryan, an analyst at Sterne Agee & Leach. “The Chinese don’t want a large part of the stake to be sold when the price of the shares has already declined significantly.” The sale would represent 13 percent of Bank of America’s stake in China Construction. Bank of America invested $3 billion in the Chinese lender in 2005 and has since been increasing its stake. In November, Bank of America paid $7 billion to almost double its holding to 19.1 percent. Since the initial investment, China Construction has catapulted to become the world’s second-largest bank by value, while Bank of America slipped to seventh. Legal Provision China Construction declined 36 percent last year in Hong Kong, while the benchmark Hang Seng Index fell 48 percent. Bank of America shares lost two-thirds of their value during the year, prompting the company to halve its quarterly dividend to 32 cents a share. Bank of America plans to be “a long-term and significant strategic investor in CCB,” the U.S. lender said in a November statement. The stock Bank of America bought in 2005 became eligible for sale in October, prompting analysts to suggest the U.S. lender would sell part of its stake. China Construction has been notified of the transaction and understands that Bank of America sold the shares because of “its financial situation,” the Chinese firm said in a statement today. The companies will continue their strategic partnership and cooperate in all business areas, China Construction said. Merrill Lynch & Co. and UBS AG managed the sale. Securities Law Bank of America canceled the December offering partly because of a Chinese securities law banning investors holding more than 5 percent of a locally incorporated, publicly traded company from selling shares within six months of buying the stock, two people familiar with the matter said at the time. The U.S. bank decided to try again on expectations the rule doesn’t apply to Chinese shares traded in Hong Kong, a person with knowledge of the matter said today, declining to be identified. Bank of America spokesman Scott Silvestri declined to comment on the latest sale. More foreign investors in Chinese banks may seek to sell this year after their holdings became freely tradable. UBS, Switzerland’s biggest bank, sold its entire stake in Bank of China Ltd. to raise cash on Dec. 31, the day its three-year lockup period ended. “The overhang concern should further add near-term pressure on share price performance,” as the market prices in fears that Bank of America could place the rest of its shares not subject to lockup restrictions, Samuel Chen, a Hong Kong- based analyst at JPMorgan Chase & Co., wrote in a report today. Temasek Holdings Pte can sell its 9.9 billion China Construction shares anytime as its lockup agreement ended in August, according to Construction Bank’s listing document. Lockup Ends Royal Bank of Scotland Group Plc, controlled by the U.K. government after a bailout, owns 20.9 billion shares in Bank of China, or 8.5 percent, while Temasek owns 11.9 billion shares, or 4.8 percent. Their stakes can be sold after a Dec. 30 lockup ended, according to the Chinese bank’s listing prospectus. Goldman Sachs Group Inc. owns 16.5 billion shares in Industrial & Commercial Bank of China Ltd. and has agreed not to sell the shares until after April 28, 2009, according to the bank’s listing document. Chinese lenders have mainly evaded the toxic securities that caused $740 billion of writedowns and losses at banks and brokers worldwide, making it easier for Western firms to find buyers for their holdings.

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