What Assets Might Bank of America Sell?
CHARLOTTE, N.C. (
) --
Bank of America
(BAC) - Get Report
is likely to announce some more divestitures in the first half of 2010, but investors shouldn't expect any blockbuster deals.
The Charlotte, N.C.-based firm fetched more than $10 billion through asset sales last year, but seems to have gotten rid of the larger, non-core franchises that were isolated from other operations. It sold two banking franchises -- Columbia Management and First Republic -- as well as its stake in China Construction Bank.
As part of its agreement to repay $45 billion in TARP funds last December, Bank of America told the
Federal Reserve
it would pare down its diverse array of businesses further. Ultimately, it must agree to sell $4 billion worth of assets by June, and complete transactions by year-end. Bank of America agreed to raise whatever shortfall there is by issuing more common equity -- a move that would dilute stock -- sodden shareholders even more.
Apart from stock holdings, some Merrill businesses, the U.S. Trust division and a couple of joint ventures, there don't seem to be many stand-alone divisions that could be easily carved out of Bank of America's large, interwoven folds. Of those isolated fragments, it's not clear which, if any, management considers non-strategic.
According to the business plan sketched by
CEO Brian Moynihan on Wednesday, Bank of America may try to shrink in a more organic fashion. That would mean closing or selling unnecessary branches, offering fewer products and shedding customers and partnerships that aren't the best avenues for profitable growth.
"There are no major businesses that would fit in that
divestiture category, because if you think about how we go to market against those customers and the products and capabilities and the relationship of management forces, we need everything we have," said Moynihan. "We need the
financial advisors. We need the bank branches. We need the wealth management people in U.S. Trust. We need the commercial bankers. We need investment bankers. We need sales traders and capital markets capabilities."
Moynihan added that the firm plans to replace "lazier" assets with more profitable ones -- a comment that doesn't exactly sound like it was pulled from a marketing brochure for potential buyers.
Still, Bank of America does have a few options if federal regulators push the bank to hatchet off big portions rather than whittle itself down bit by bit. The company divested part of Merrill Lynch's major stake in
BlackRock
(BLK) - Get Report
around the time of the acquisition, but still held onto 34% of the asset-management giant. The stock could be easily sold, and at a current market value of over $28 billion, Bank of America's Blackrock stake could reel in roughly $9.5 billion.
However, Blackrock is quite profitable, and led by well-respected money managers, so it may not make sense to sell off more of the stock, which has more than doubled over the past year.
In 2006, Bank of America also transferred some of its assets to the Brazilian bank
Itaú Unibanco
(ITUB) - Get Report
, in exchange for what was then a few billion dollars' worth of common and preferred equity, and a seat on Itaú's board. The 7.4% stake was in a lock-up period until last September, but there's been no indication that Bank of America sold any of its shares yet. An Itaú executive told
Reuters
last year that the bank would prefer to repurchase the stake itself if it must, but that major buyers had shown interest as well.
Analysts have also cited Countrywide's insurance division as a potentially non-core item that could be on the chopping block, but that seems to be a moot point. Insurance has been wrapped into the home loan division under Barbara Desoer, who said at a conference last month that the division, called Balboa, has already been assessed. The inessential portion is gone or in the process of being exited.
"We've got it down to the core now," Desoer said, "and we continue to manage it as an insurance business in support of the consumer franchise."
Bank of America is also in a payments processing joint venture called Pariter Solutions that was established in May 2008 with
Wells Fargo
(WFC) - Get Report
. But in an environment where electronic payments are growing tremendously, especially in the financial industry, exiting that partnership wouldn't seem to make much sense.
Another idea that's been floated is the divestiture of U.S. Trust, but Moynihan affirmed on Wednesday that the division, which caters to the wealthy, is a core part of Bank of America's strategy going forward. There was also speculation that Bank of America might have to get rid of all its capital markets businesses -- including Merrill Lynch -- when the Obama administration had been pushing regulation that would require such a move. But the so-called Volcker rule, named after economic adviser Paul Volcker, seems unlikely to come to fruition.
Other, smaller joint ventures, like its 2007 investment in Climate Exchange PLC, could only contribute incrementally to the $4 billion figure that Bank of America must raise through divestitures by year-end. The same is true for the wide array of business lines that Bank of America operates, from
equipment leasing to
private equity and mezzanine financing to
import-export servicing -- none of which are necessarily up for grabs, but all of which make up tiny parts of Bank of America's $2.2 trillion balance sheet.
Furthermore, while Bank of America is trimming its 6,100 retail locations -- reportedly by 7% or so -- there's no chance all of the capital it is required to raise by the Fed will come from that type of divestiture. Recent acquisitions -- such as those by
U.S. Bancorp
(USB) - Get Report
or
First Niagara
(FNFG)
, not to mention failed-bank deals with the FDIC -- suggest that acquirers can buy branches for under $1 million apiece, depending on the loan-deposit mix, and geographic location.
Bank of America has a reputation for
big deals and quick integrations. Even its largest acquisition in dollar terms, of
LaSalle Bank in 2007, vanished into the parent company within a few quarters.
Though Bank of America agreed to raise a "commensurate amount of common equity" to fill in whatever of the $4 billion in asset sales it fails to complete, Moynihan said Wednesday that the bank has enough capital to start thinking about dividend hikes and buybacks soon.
"We don't anticipate needing to raise more common equity," Moynihan said, noting that sales of small, non-core items would "free up a lot of capital."
At this point, Bank of America may well find a way to get rid of $4 billion worth of assets in 2010, but it won't be in one fell swoop.
-- Written by Lauren Tara LaCapra in New York
.
