BofA announced purchase of 9% of China Construction Bank for $3 billion. What's the deal? CCB is on its posterior. A book of bad loans and officers who have regularly cleaned out the till. Bof A has a cadre of Chinese and Chinese Americans from its San Francisco hayday. These boys go to CCB to downsize it, put in top notch controls, state of the art payment and deposit systems and, eventually, set up retail banking operations. The bad loans will be sold to some combine of Chinese chieftains, call it Yuk Foo Finance. With the clean up and the BofA imprimatur, CCB can go to the Global capital markets to re-capitalize the bank properly. Look for Bof A and Morgan Stanley to head this one.
Let's spin. BofA and Morgan (who has a deal on with CCB) start to get plum loan and equity deal flow with major Chinese companies. BofA sets up a sino-dollar facility to accomodate deposit flows with BofA safety net. This facility will also recycle dollars to relieve stresses at the central bank in Beijing. Down the road, BofA jointly with CCB gets to issue up to 200 million VISA cards to the locals, backed by BofA's top notch credit card processing. China has a real bank that can help the country grow, and BofA has a diverse cash machine that will earn it a nice return on its investment.
CCB will cooperate as ordered by Beijing and of course it is doubtful BofA would have undertaken such a challenge without carte blanche from Hu and crew.
It is going to take lot of work like this keep China from flat running off the rails.
Do not expect the gang at Morgan to bad mouth the Dragon any time soon.
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