Temasek Holdings Pte sold its 3.8 percent stake in Bank of America Corp. at a loss that may total $4.6 billion, as the Singapore state-owned fund shifts bets from Wall Street to emerging markets.
The sale may have raised about $1.27 billion, based on the average price of Bank of America stock in the first quarter. The divestment was completed by March 31, according to a U.S. filing. Temasek declined to comment on the price.
Temasek Holdings Pte sold its 3.8 percent stake in Bank of America Corp., reducing investments in U.S. and European financial companies that dragged down the value of the Singapore state-owned investment firm last year.
Temasek, whose investments shrank 31 percent in the eight months through Nov. 30, raised its stake in China Construction Bank Corp. this week, and Chief Executive Officer Ho Ching said yesterday the fund would reduce exposure to developed economies. Temasek had spent about $5.9 billion since 2007 buying shares in Merrill Lynch & Co., acquired by Bank of America on Jan. 1 after the stock slid 78 percent last year.
“The belief now is that the world is not so American-centric anymore,” said Melvyn Teo, associate professor of finance at the Singapore Management University. “It’s going to be driven more and more by the Chinese economy and consumer so might as well load up more on Chinese banks than American banks.”
The value of Temasek’s assets fell to S$127 billion ($87 billion) in the eight months to Nov. 30 as the credit crisis drove down the value of stakes in Merrill Lynch, Barclays Plc and Standard Chartered Plc. The drop in the portfolio tracked a 38 percent retreat in the MSCI World Index.
Bank of America Stake
Ho, wife of Singapore Prime Minister Lee Hsien Loong, drove an expansion outside Singapore and increased financial assets to 40 percent of the company’s portfolio. Charles ‘Chip’ Goodyear, the 51-year-old former head of BHP Billiton Ltd. who oversaw a fourfold increase in the company’s stock during his almost five- year tenure as CEO, will replace Ho in October.
A Form 13F filing to the U.S. Securities and Exchange Commission yesterday from Temasek indicates that the fund no longer held shares in Bank of America or Merrill Lynch as of March 31. An earlier filing showed that the Singapore firm owned 219.7 million Merrill Lynch shares at the end of 2008.
At the average price of $6.73 for the first quarter, the stake would have been valued at $1.27 billion. The sale would have been worth $2.14 billion at yesterday’s closing price.
Since the end of March, when Temasek completed the sale, Bank of America has risen 66 percent. The stock dropped 52 percent in the first quarter.
Temasek confirmed it sold its Bank of America shares in an e-mailed response to Bloomberg News queries today. The company declined to say how much it sold the stake for or when the sale was conducted. Mark Tsang, a Hong Kong spokesman at Bank of America, declined to comment.
“They probably want to turn the page on this one and move on,” said David Cohen, an economist with Action Economics in Singapore. “I suspect they’re telling themselves they should have focused on Asian investments, particularly China. You can’t fault them now. The financial crisis blind-sided a lot of investors.”
Merrill Lynch investors received 0.8595 Bank of America stock for each share held in the U.S. brokerage in the acquisition. The deal meant Temasek received about 188.8 million Bank of America shares, the equivalent of a 3.8 percent stake in the company, according to calculations by Bloomberg.
Bank of America Chief Executive Officer Kenneth Lewis has said he was pressured in December by Federal Reserve Chairman Ben S. Bernanke and former Treasury Secretary Henry Paulson to complete the Merrill Lynch acquisition amid mounting losses at the brokerage firm.
The Charlotte, North Carolina-based bank has to raise $33.9 billion to boost capital after U.S. regulator stress tests. Its shares have tumbled 69 percent in the past year, outpacing the 37 percent decline in the Standard & Poor’s 500 Index.
Bank of America sold part of its Construction Bank stake to a group of investors including Hopu Investment Management Co., a private-equity fund run by Goldman Sachs Group Inc.’s China partner Fang Fenglei, and Temasek, two people with knowledge of the matter said on May 12.
Morgan Stanley acted as an agent for Bank of America in the sale, not Merrill Lynch, the Wall Street Journal reported today, citing people familiar with the transaction.
Bank of America rose 2.7 percent to $11.31 in New York yesterday. It traded between $14.81 and $2.53 apiece in the first quarter.
Sovereign funds, mostly from Asia, have made “substantial losses” on more than $60 billion invested in U.S., Swiss and U.K. banks since the start of the subprime crisis, according to International Financial Services London, an industry lobby group.
Standard Chartered, Barclays
Along with its stake in Merrill Lynch, Temasek also raised holdings in Standard Chartered, the London-based bank that gets almost all its profit from emerging markets, and bought shares in Barclays, the U.K.’s third-biggest bank. The company had earlier said it wants the Organization for Economic Cooperation and Development countries to account for about a third of its investment portfolio.
Temasek will cut its holdings in the so-called OECD countries to 20 percent as it expands in Asia and emerging markets from Latin America to Africa, Ho said in a speech posted on the company’s Web site yesterday.
The MSCI World Index that tracks almost 1,700 stocks in developed markets has risen 0.5 percent this year, compared with a 45 percent gain in China’s benchmark Shanghai Composite Index.
“We have also been re-assessing our long term portfolio balance over the last two years,” Ho, 56, said in the May 12 speech. “As Asia continues to develop, it continues to de-risk. We are increasingly more confident of Asia’s future.”
Temasek was founded in 1974 to foster development of the island’s banks, airlines and ports, and remains the biggest shareholder of six of the 10 biggest Singapore companies by market value. It owns shares of the island’s biggest bank and its largest telephone company.
Temasek’s investments in Asia include Bank of China Ltd. and ICICI Bank Ltd., India’s No. 2 lender.
“We’ve been very heavily overweight in Asia for some years now and leery of the Western financial institutions because Asia is where the growth is at,” said Hugh Young, managing director at Aberdeen Asset Management Plc, which has about $30 billion of Asian assets.