Bank of America sells right to CCB

shares
Bank of America is to sell its right to take up extra shares in a Rmb61.7bn ($9.3bn) rights issue by China
Construction Bank to Temasek, the Singapore state investment agency, according to a person with knowledge of
the transaction.

Temasek, which is the third largest shareholder in CCB, the world’s second largest bank by market capitalisation, is
seeking to increase its focus on emerging market investments, especially in fast growing Asian economies.

BofA, the second largest shareholder in CCB after the Chinese government, is thought to have decided to sell its
rights to Temasek in order to raise funds to strengthen its balance sheet following the disclosure of fresh problems
with mortgage loans.

Temasek refused to comment on the deal. However, BofA would have had to pay about $1bn to take up its full rights
in the CCB offering, according to data compiled by Bloomberg.

“Under the new Basel [international banking regulatory] rules European and American banks will have to be more
proactive in boosting capital and so have to be more cautious about making large investments,” said Dorris Chen, a
banking analyst at BNP Paribas.

“BofA also faces pressure from US taxpayers who have paid hundreds of billions of dollars to bail out American
banks and would be very unhappy about BofA giving cash to a Chinese bank instead of lending to US consumers.”

BofA’s shareholding in CCB will fall from about 10.95 per cent to about 10.2 per cent as a result of the deal, while
Temasek’s stake will rise by about the same percentage from its current level of just under 6 per cent.

It is not clear whether Temasek will also take up its own rights in the offering, which does not close for about a month.

A spokesman for CCB said the Chinese bank had not received final word from BofA over whether it plans to
participate in the rights issue.

CCB and all of its domestic competitors are conducting rights issues and selling convertible bonds to help shore up
their balance sheets, which have been eroded by an unprecedented government-ordered lending spree since the
start of the financial crisis.

Chinese banks have announced plans to raise a total of more than Rmb320bn through rights issues and convertible
bond sales this year.

If initial public offerings, such as Agricultural Bank of China’s $22bn listing in July, are included then the total capital
raising by Chinese banks this year is expected to easily exceed Rmb500bn.

Continued strong loan growth this year has helped most of the country’s big state-controlled lenders post record net
profits, with CCB, AgBank, Bank of China and Industrial and Commercial Bank of China all earning 30 per cent
more in the third quarter than in the same period a year earlier.
BofA and PNC to reduce stakes in
BlackRock
Bank of America and PNC Financial Services have moved to reduce their stakes in BlackRock, unveiling plans to
sell 42m shares through a secondary offering of the investment manager’s stock.

The sale should reap billions of dollars for the two US lenders just as the banking industry adapts to higher capital
standards.

It comes as BofA seeks to offload divisions and assets that do not fit with its core corporate, investment and
consumer banking businesses.

“This transaction is consistent with our overall strategy of focusing on our three core customer groups, consumers,
companies and institutional investors,” a BofA spokesman said.

The offering will also help BlackRock raise the float of its common shares, a move the company expects will boost
demand from institutional investors.

BlackRock’s shares dropped 4.3 per cent to $165.66 Wednesday in New York trading. BofA jumped 1 per cent to
$11.52, while PNC rose 2.2 per cent to $54.06.

BofA had become BlackRock’s largest investor through Merrill Lynch’s 2006 deal to fold its investment-management
arm into the asset manager. The bank, based in Charlotte, North Carolina, in turn acquired Merrill in 2008.

BofA will sell 34.5m shares and the offering will reduce BofA’s ownership stake, both common and preferred shares,
in BlackRock from 34 per cent to less than 13 per cent.

PNC, a Pennsylvania-based regional lender, will sell up to 7.5m shares and reduce its combined holdings from 24
per cent to 20 per cent.

BlackRock had retained the right to block any sale of each bank’s stakes.

The offering will not affect BlackRock’s distribution agreement with BofA, which sells the company’s funds through its
wealth-management arm.

BofA and Morgan Stanley will serve as joint book-runners of the offering, BlackRock said in a statement.

A spokeswoman for the company declined to comment any further.

BlackRock’s shares have fallen 29 per cent this year.

BofA views Merrill gamble with new optimism
Two years ago on Wednesday, Ken Lewis sat triumphantly on the auditorium dais at Bank of America’s
new midtown Manhattan headquarters as he unveiled the prize he had long coveted, Merrill Lynch.

“This is the strategic opportunity of a lifetime,” Mr Lewis, then BofA’s chief executive, crowed.

The financial crisis had by no means passed when Mr Lewis and his counterpart at Merrill, John Thain,
spent 48 hours – the same harrowing weekend that brought the collapse of Lehman Brothers – hatching
their $50bn, all-stock deal. The agreement valued Merrill shares at $29, a 70 per cent premium to their
close the previous Friday but well below where the bank had traded before the financial markets
descended into chaos.

BofA, the largest US lender, was not the only bank to capitalise on the radical changes afoot. JPMorgan
Chase, Barclays and Wells Fargo would also strike deals they would have been hard-pressed to pull off in
more benign times. Yet Mr Lewis appeared to emerge from the industry’s nadir with the winning hand.

“This is an opportunity to create the premier financial services company in the world,” Mr Lewis said of
Merrill, whose bets on mortgage-based securities had left the proud brokerage on the brink of collapse.
Such optimism still echoes through the bank’s office towers in both Charlotte and New York, even after
the merger alienated investors, drew lawsuits and regulatory scrutiny and helped bring an end to Mr
Lewis’s long career with the bank.

Now, under the direction of Brian Moynihan, who succeeded Mr Lewis in January, BofA is pressing ahead
with plans to expand its investment banking and transaction services divisions abroad while aggressively
pushing greater interaction between financial advisers and bankers domestically.

The opportunities that Mr Lewis first trumpeted in September 2008 still exist. In one shotgun merger,
Merrill delivered the global investment bank BofA would have spent years building on its own. And the
Thundering Herd, Merrill’s army of financial advisers, remain an ideal complement to the company’s
sprawling retail-banking footprint.

“It’s not like we need to be in more places,” Mr Moynihan told the Financial Times. “In the top non-US
markets where we operate, we’re adding corporate bankers, investment bankers, salespeople, research
analysts.”

Few banks capitalised more on the rapid recovery of the capital markets in the summer of 2009.

“For things under their control, [the Merrill deal] has been successful,” says Moshe Orenbuch, an analyst
with Credit Suisse who has an “outperform” rating on the bank’s shares.

BofA’s global banking division, which includes the trading, underwriting and financial advisory businesses
beefed up by the Merrill acquisition, posted net income of $7.2bn in 2009; more than twice any other unit
earned. The bank sold more than $19bn of its stock in December 2009 to help repay the government for
the $45bn it poured into BofA during the crisis. Billed at the time as the largest equity offering by a
publicly traded US company, the sale was seen as a symbol of BofA’s new capital markets heft.

And while BofA did not avoid the impact of the markets’ swoon that crimped profits throughout Wall Street
last quarter, the bank ranked first in US underwriting fees during the period.

“The deal made sense from day one,” says Dick Bove, an analyst with Rochdale Securities who has a
“buy” rating on BofA shares. “Conceptually it was perfect in every respect. Sure, any management team
can botch the execution, but I don’t think there is any evidence that they have.”
It would have been difficult to make such a statement during the initial months after the merger, when
new controversies seemed to erupt with stunning regularity, BofA’s shares were in freefall and the bank
remained squarely in the sights of regulators and politicians looking to assign blame for the worst financial
crisis in generations.

Merrill’s decision to accelerate the payment of $3.6bn in employee bonuses in the days leading up to the
close of the bank’s sale to BofA drew the ire of Andrew Cuomo, the New York attorney general, who
eventually brought civil fraud charges against the lender. In February the bank paid $150m to settle
claims by the Securities & Exchange Commission that it should have disclosed the payments to investors.

Meanwhile, executives such as Merrill’s former president, Greg Fleming, and Robert McCann, who ran
the wealth management arm, were leading an exodus of bankers and traders. Mr Lewis had blamed Mr
Thain, who had agreed to stay with the bank following the deal, for the bonus fiasco and fired him at the
end of January.

BofA’s shares tumbled throughout the merger’s tumultuous start. Some longtime BofA investors
complained that the bank paid far too much for a company that appeared in danger of following Lehman
into bankruptcy court. The bank’s fourth-quarter 2008 loss, along with the need to accept an additional
$20bn in government support to close the Merrill deal, further eroded investors’ confidence.

So did the bank’s initial struggle to find a replacement for Mr Lewis, who in October 2009 stunned even
some members of his own board with the decision to retire early. Shareholders had stripped Mr Lewis of
his chairman title in April 2009.

Hampered by the limits the government had imposed on compensation at recipients of its support, the
search to replace Mr Lewis eventually led to Mr Moynihan, a versatile executive who came to BofA
through the bank’s 2004 acquisition of Fleet Financial.

While he lacked the wattage of some of the outside candidates approached during the search, Mr
Moynihan helped erase some doubts on the bank’s direction while moving forward with the unglamorous
aspects of integrating Merrill’s operations. “It’s in very good shape,” he said of the integration. “We’re
getting through it.”

Veteran Merrill investment bankers have shown a willingness to work alongside their new colleagues at
BofA’s commercial bank – and given the differences in their client bases and compensation schemes, this
is no minor accomplishment – in pitching business to mid-sized companies that need help tapping the
capital markets.

“From the first day, [the investment bankers] would say, ‘where do I go first?’ ” said David Darnell,
president of global commercial banking. “They call us back. They show up.”

Last weekend, the bank’s wealth management arm merged its legacy BofA client accounts on to Merrill’s
broker-dealer system, giving advisers access to the trading platforms, research and market data that
have helped make Merrill brokers more productive than their peers.

These processes should put the bank in a better position to benefit from an economic recovery in the US.

BofA, in its current structure, has few strategic choices – domestic revenues accounted for more than 80
per cent of the bank’s total last year. This continued dependence on its home market and, in particular,
the US consumer, will limit their opportunities to add new clients. “The biggest challenge is on the
consumer side,” Credit Suisse’s Mr Orenbuch said. “They have the largest number of consumer accounts
in the country.”

Mr Moynihan and his team believe they can build on this unrivalled network by selling additional services
to existing clients. The legacy Merrill businesses, especially the wealth management arm, are a central
cog in that strategy, executives said.
In a programme launched in May 2009, Merrill financial advisers have referred almost 10,000 clients to
BofA’s commercial banking arm. The lender also plans to forge stronger ties between wealth
management and the retail bank.

If this push works, more shareholders may begin to see the wisdom of Mr Lewis’s gamble. So far, they
remain unconvinced. Among the top Wall Street banks, only Citigroup shares have fared worse than
BofA’s since September 2008. The bank trades well below its book value, at 0.6, according to Bloomberg.
And while the shares have regained some of their footing since last spring, they continue to trade at less
than half their value before the Merrill deal.