From 2005 until 2013, Bank of America had a substantial ownership stake in China Construction Bank. Here's the story behind the investment.

1. Bank of America’s Bet on China
IN ONE CHART
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CCBSharesOwnedbyBofA(Billions)
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Introduction
From 2005 until 2013, Bank of America owned as much as 19% of China’s then-
second biggest bank by assets, China Construction Bank. It turned out to be an
incredibly lucrative investment. This chart and the accompanying narrative tell
its story.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CCBSharesOwnedbyBofA(Billions)
Year
2005: B of A buys in
Bank of America first purchased shares of China Construction Bank in 2005,
paying $3 billion for 19.1 billion shares. This gave Bank of America a 9% stake
in the Chinese bank, with a five-year option to increase its interest to 19.9%.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CCBSharesOwnedbyBofA(Billions)
Year
2006: Accounting freeze
Because Bank of America’s shares couldn’t be sold until the third anniversary of
CCB’s October 2005 initial public offering, they continued to be valued on Bank
of America’s balance sheet at their $3 billion cost basis.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CCBSharesOwnedbyBofA(Billions)
Year
2007: Carrying value increased to $16.4 billion
By the end of 2007, Bank of America was within a year of being able to sell its
CCB stake. This meant Bank of America could switch to the fair value method
of accounting associated with available-for-sale securities. Bank of America
thus increased the position’s carrying value by $13.4 billion.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CCBSharesOwnedbyBofA(Billions)
Year
2008: Exercise of option
Bank of America decided to exercise its option to purchase additional shares in
2008. It paid a net $3.3 billion to increase its stake in CCB to 44.7 billion shares,
representing roughly 19% of the Chinese bank’s outstanding common stock.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CCBSharesOwnedbyBofA(Billions)
Year
2009: Sale of initial stake
By 2009, Bank of America was free to unload its original purchase of 19.1 billion
shares (the 25.6 billion shares purchased under B of A’s option couldn’t be sold
until 2011). It did so, realizing a $7.3 billion pre-tax gain and thereby reducing its
remaining stake to 25.6 billion shares, or 11% of CCB.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CCBSharesOwnedbyBofA(Billions)
Year
2010: Fair value accounting for most remaining shares
By 2010, just like in 2007, Bank of America was within a year of being able to
offload the lion’s share of the 25.6 billion CCB shares purchased under the option
agreement. As such, B of A adopted fair value accounting and recorded a $10.5
billion unrealized gain. It also received $535 million in CCB dividends in 2010.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CCBSharesOwnedbyBofA(Billions)
Year
2011: B of A sells most of remaining stake
Bank of America was now free to offload all but two billion shares of its CCB
stake -- the latter were still subject to restrictions. It accordingly did so, selling
23.6 billion shares for a pre-tax gain of $6.5 billion. B of A also received $836
million in dividends from CCB in 2011.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CCBSharesOwnedbyBofA(Billions)
Year
2012: Fair value accounting for final 2 billion shares
As in 2007 and 2010, the pending expiration of restrictions on the two billion
shares still owned by Bank of America allowed it to increase the position’s
carrying value from its cost basis of $716 million to the fair market value of
$1.4 billion. By this time, Bank of America owned only 1% of CCB.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CCBSharesOwnedbyBofA(Billions)
Year
2013: Sale of last 2 billion shares
This proved to be the final year that Bank of America had an ownership interest
in China Construction Bank. During 2013, B of A realized a $753 million pre-tax
gain after disposing of its remaining two billion shares. All told, Bank of America
earned nearly $16 billion from its $6.3 billion investment.

12. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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Slideshow by John J. Maxfield, The Motley Fool