Chillin' out till it needs to be funded
Our analysis on the Big 4 from China will follow later this week as China’s banks stamp the quarter with extraordinary profitability even as china gets ready to bring its $2 tln local body loans onto the balance sheets and imposes Reserve requirements on the ones remaining off balance sheet, correcting possibly the profitability as the way forward.
Meanwhile China negotiated BofA’s intended sale of CCB with the Bank asking it to keep half of its remaining CCB stake for the future. BofA managed the transaction at much the same price and number of shares it did the earlier tranche with Warren Buffet’s $5 bln investment coinciding in the same week. BofA now holds $9 bln worth China construction Bank shares amounting to 13.5 bln shares in issue at 5% of the bank’s capital, a n equal amount sld off to create fresh capital in its balance sheet
China also included the Singapore Sovereign fund in a consortium buying CCB stake of 13.1 bln shares from BofA for its pension funds and with Temasek landing another 1.7% or 4.4 bln shares of CCB at a lower H$ 4.94 per share after its sale of 1.5 bln shares last month caused CCB price to drop by 14% on the exchanges. China is looking to shore up its Big 4 banks’ capital ahead of IPO exercises by the banks as large new loan book additions continue to deplete Tier I capital stores of the banks at a rapid pace. After the new reserve requirements on the remaining $1.5 tln off balance sheet loans another $150 bln of Capital of the banks will be tied up to existing RWA and new capital will be required to keep up growth in the Chinese economy.