CHARLOTTE, N.C. (
) -- At first glance, one might be tempted to think that
Bank of America's
recent divestitures of foreign assets mark the end of its capital-raising requirements, and a return to its provincial roots, but think again.
Bank of America recently announced two major deals that result in $7 billion in gross proceeds: The sale of its 5.4% stake in the Brazilian lender
, and its 25% stake in the Mexican unit of Spanish lender
( STD), announced on Wednesday. As part of its late-2009 agreement to repay $45 billion in bailout funds, management agreed to raise $4 billion in additional capital by right-sizing itself by the end of 2010.
That requirement was later reduced to roughly $3 billion, since Bank of America's stock offering to repay TARP raised more money than initially targeted. The bank was required to outline its divestiture plan to the Federal Reserve by June, though it hasn't yet outlined those plans publicly.
A spokesman wouldn't say whether or not Bank of America has met the Fed's $3 billion Tier 1 requirement, but that it's safe to expect more deal announcements in the near-term.
"The bogey now is $3 billion in capital raised by year-end of 2010," said spokesman Jerry Dubrowski. "That's the target and what we're making progress against and where we expect to be there by year-end."
The reason Bank of America chose to sell those assets is simpler and more cosmopolitan than it seems: It was an easy way to boost "core" capital -- in other words, receiving straight-up cash -- by getting rid of assets it can't do much with.
"The Santander investment and Itaú investment were really considered non-core assets that we are monetizing so we can focus on our core businesses," says Dubrowski. "The assets are somewhat locked -- they're not liquid, there's a not a lot you can do with them."
Bank of America is the largest bank in the country by nearly any measure -- assets, deposits, loans or the sheer diversity of its business lines. CEO Brian Moynihan had outlined a broad strategy earlier this year to
get rid of those "lazier" assets, while winding down the less profitable parts of core businesses. Instead of wasting time and money on costly customers -- the late-payers, the overdrafters, the defaulters -- Bank of America is focused on the upper crust in wealth management, private banking and the like.
It's also focused on growth opportunities abroad in several arenas. A "locked" stake in Itaú Unibanco or Santander Mexico does Bank of America less good than serving underbanked consumers who simply need a place to borrow money or store their cash. It also does less good than lending to fast-growing businesses in emerging markets, or cultivating opportunities overseas for yield-hungry investors.
Profits in Bank of America's wealth management and capital markets divisions outstripped those of the entire corporation's during the first quarter, at $3.7 billion vs. $3.2 billion. That's because of $2.9 billion in losses largely stemming from bad home loans and credit card debt. Commercial banking swung to a $713 million profit from four consecutive quarterly losses that preceded it.
That's why Bank of America has been expanding its corporate-banking and capital-markets franchises, while getting rid of souring credit card debt.
"We have a significant presence around the world and continue to focus on our global business," said Dubrowski, explaining the bank's handful of key business lines: Retail deposits and loans, commercial banking, financial advisory services, capital markets, investment banking and the like. "Investments outside of that that aren't related to core banking and financial services and wealth management - that's really where we're going."
As far as what other assets may be on the chopping block that are similar to the Santander and Itaú investments, a couple immediately come to mind: China Construction Bank and
. Bank of America won't say whether or when it plans to exit those stakes, but Dubrowski notes that it is obligated to maintain its $9.2 billion China Construction stake until August 2011.
As for Blackrock, only time will tell. Dubrowski acknowledged that it is a similar type of asset, but couldn't divulge any information beyond that.
Still, with $30.8 billion worth of securities and other types of investments in emerging-markets businesses at the end of the first quarter, Bank of America would seem to have options. With a loan book of just $9.75 billion in such markets - spread across over a dozen countries in Latin America, Asia-Pacific, the Middle East, Africa and Eastern Europe - it also has room to grow.
-- Written by Lauren Tara LaCapra in New York