Bank of America Corporation‘s (BAC) international wealth management units have attracted bidders from Europe and Canada, Reuters reported on Thursday. The list of bidders includes Royal Bank of Canada (RY) and Credit Suisse Group (CS). Switzerland-based JULIUS BAER GRP N is also keen on purchasing some of BofA’s non-U.S. wealth management units.
Earlier in April, BofA had announced its plans to divest these units in Europe, the Middle East, Latin America and Asia (excluding Japan) in anticipation of receiving about $2 billion.
With the completion of the first round of bidding, BofA is in the process of informing the short-listed bidders. However, the sale offer may not seem attractive to many buyers, as the wealth management businesses normally do not contribute to the equity capital. On the other hand, the eventual buyer will be rewarded with BofA’s goodwill attached with the business on sale.
Since the financial crisis, wealth management businesses across the globe have been consolidating as higher expenses and increased regulations have made these operations less attractive. Likewise, BofA’s primary aim behind selling these units is to further streamline its operations and concentrate on its core businesses.
The units on sale, which were mostly obtained by BofA from its Merrill Lynch acquisition in 2009, comprise nearly $90 billion worth of assets under management. However, this division of BofA has been reporting mediocre results due to inadequate business scale.
BofA has preferred to auction off these units, instead of divesting them separately. In the auction process, the company will be able to sell-off the entire operations without too many complications as it is easier to negotiate and execute the sale. However, there may not be many potential buyers for these units that are spread across the globe.
Hence, if BofA divests its international wealth management units separately, it could turn out to be a more profitable venture. Though the process is complex, the company would be able to attract more bids. Additionally, many of the banks from China, Singapore and South Korea have been trying to expand their wealth management businesses, and this could be an opportunity for the banks to improve their market share.
Conclusion
BofA has been actively divesting its non-core and unprofitable operations since the last two years. The company has been doing so in order to recover from its acquisition of Countrywide Financial in 2008, which resulted in losses and lawsuits.
Clearing the stress test authenticated BofA’s strong capital position and its ability to successfully overcome another severe economic downturn. Though BofA has been battling with a swelling cost structure and a stressed run-off portfolio, the company’s repeated attempts to improve its balance sheet and capital ratios, in spite of passing the stress test, is commendable.
Currently, BofA retains its Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we maintain our long-term Neutral recommendation on the stock.
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