According to a CNBC report, Bank of America Corporation (BAC) is all set to vend its international wealth management unit to Swiss private bank JULIUS BAER GRPN. The deal is anticipated to fetch BofA about $1.5 to $2 billion.
According to the source, the company will retain the Japanese division of its overseas wealth management wing and will continue to manage its international clients through its domestic offices. The wealth management wing handles around $90 billion of funds primarily belonging to the high-net-worth clients.
Earlier this year, BofA was looking for possible bidders to offload its international wealth management unit. The list of bidders included Royal Bank of Canada (RY) and Credit Suisse Group (CS). The reason behind its divestiture plan was the inability of this unit to generate meaningful profits.
Of late, BofA is in the process of selling those units, which do not fit into its strategic setting. By doing so, it expects to concentrate more on its core business, reduce expenditure and raise additional liquidity. The need for extra liquidity stems from the new Basel III regulations that require banks to maintain more liquidity in order to withstand severe financial crisis.
Moreover, divesting unproductive units could help BofA rationalize its operations and work towards building a sound capital position. The deal is likely to be the largest in the wealth management industry after ING Groep NV‘s (ING) sale of its private banking assets to Julius Baer and Singapore based Oversea-Chinese Banking Corporation Limited for $1.9 billion in 2010.
Earlier in March, BofA sold its entire Irish credit card operations to Apollo Global Management LLC‘s (APO) fund affiliate, Apollo European Principal Finance Fund I (Apollo EPF). The deal is pending for further regulatory approvals. It had also sold its Spanish consumer credit card operations and Canadian credit card portfolio to Apollo and The Toronto-Dominion Bank (TD), respectively in 2011.
Conclusion
BofA’s constant endeavor to reduce the number of unproductive operations reflects its strategy of overcoming the sour acquisition of Countrywide Financial in 2008, which bought along a deluge of losses and lawsuits. In order to match the recovery pace of its peers, the company is narrowing its worldwide presence by actively engaging in divestiture of its international units.
The Federal Reserve’s new proposed financial rules, which require banks to maintain a robust 7% total tier 1 ratio, is pressurizing banks to improve their capital positions. Thus, selling off unprofitable units and focusing on core business is becoming necessary for these banks.
Currently, BofA retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.
