Right now Bank of America is in the process of selling a number of “non core” assets to raise capital.The latest being offered is a Merrill Lynch real estate portfolio, which might sell for around $1 billion. One of the potential buyers is said to be Blackstone.
The key calculus behind all this is: The fire sale will help shore up the balance sheet, but it’s not great for earnings. However since investors are mainly concerned with the former, that has to be the management’s priority.
Brian Moynihan admitted it on a conference call with Bruce Berkowitz last week: “Our non-core portfolio gives us capital, but hurts our balance sheet.”
And as CFO Bruce Thompson put it: we have mortgages on our balance sheet that are deducted from Basel capital requirements, and we’re trying to eliminate them to hit the 2012 Basel III deadline.
It’s essential that Bank of America convince the market they can hit that requirement. Right now, it’s up in the air, as evidenced by Goldman Sachs’ revising its outlook on Bank of America last week. Goldman said it changed its outlook specifically because of doubts about Bank of America’s ability to hit the deadline.
Some of the assets Bank of America has designated non-core so far:
- A Merrill Lynch real estate portfolio – Blackstone is one potential buyer of the ~$1 billion portfolio
- An $8.6 billion international credit card business – Sold to TD Bank Group for an undisclosed amount
- A portfolio of mortgages – Sold to Fannie Mae for ~$500 million
- A stake in CCB worth ~$17 billion – Potential buyers are KIA, which is reportedly stepping away from the deal
Of course, Bank of America would probably have to sell all of these assets and more at a good price in order to hit the requirements (min tier 1 standard is 3.5% by 2012 – that will grow to 9.5% by 2019) but the CFO said, “we expect our ratios to be in excess of all required minimums. So now we wait, and see who buys them.