UBS sells stake in Bank of China

By Martin Arnold in London

Published: December 31 2008 13:34 | Last updated: December 31 2008 13:34

UBS has made a profit of about $350m from selling its stake in Bank of China, as Switzerland’s biggest bank continues to repair the damage done to its balance sheet by the credit crisis.

The sale to institutional investors, completed late on Tuesday, will allow UBS to include the gain in its fourth-quarter results when it publishes them on February 10.

The move follows the expiry of a three-year lock-up period that had prevented UBS and other non-Chinese investors, including Royal Bank of Scotland and Singapore’s Temasek, from selling the BoC shares they acquired in 2005.

The deal may relieve fears among some international investors that Beijing would make it difficult for them to offload their lucrative holdings in Chinese banks. Earlier in December Bank of America shelved a $3bn (€2.1bn) sale of China Construction Bank stock following objections from Beijing.

RBS had also been rumoured to be mulling a sale of its BoC stake, which was worth about HK$44.4bn ($5.7bn) at Wednesday’s HK2.12 closing price in Hong Kong.

However, BoC said on Wednesday that none of its other major foreign investors had plans to sell their stakes. Wang Zhaowen, Bank of China spokesman in Beijing, told Reuters that it was informed by UBS about a month ago of the plans to sell its stake.

RBS owns 20.94bn shares in BoC, equivalent to 8.25 per cent of its share capital, making it the third-largest shareholder, behind the Chinese state-owned SAFE fund, which has slightly more than two-thirds of the bank’s shares.

UBS sold 3.38bn shares at a slight discount to the market price, generating proceeds of about $850m. It bought the stake for about $500m in 2005.

Temasek, which invested in BoC at the same time as UBS, has a 4.1 per cent stake. The Asian Development Bank and Japan’s Bank of Tokyo-Mitsubishi UFJ also have small stakes of about 0.2 per cent each.

UBS said it would remain “committed to its business relationship with Bank of China and to its businesses in China as a whole, where UBS will continue to develop its already strong client franchise”.

The Swiss bank, which this year received SFr6bn ($5.6bn) in a government bailout, acquired a 1.6 per cent of BoC before advising the Chinese lender on its 2006 public offering. UBS has offices in Beijing and Guangzhou and is licensed to trade Chinese renminbi-denominated A shares.

The sale of the BoC stake is UBS’s second disposal in as many weeks. Last week, it sealed a deal to sell its Canadian energy operations and global agricultural business to JP Morgan for an undisclosed amount.

UBS shares rose SFr0.39, or 2.7 per cent, to SFr14.84. However, they are trading at a fraction of its 52-week high of SFr45.97, or the SFr21 at which it launched a SFr15bn rights issue in May.

Copyright The Financial Times Limited 2008