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| Kenneth D. Lewis is Chairman, Chief Executive Officer and President of Bank of America |
Bank of America, the biggest US banking group by market value, on Tuesday estimated that it has incurred an additional loss of $3 billion in subprime-related collateralized debt obligations (CDO) but the losses are a fraction of its gain from an investment in the China Construction Bank.
The latest writedown brings the total losses for Bank of America to $4.6 billion.
"Where valuations will be at the end of the year is anyone's guess," Chief Financial Officer Joe Price said at the Merrill Lynch Banking and Financial Services Investor Conference in New York on Tuesday.
On the New York Stock Exchange, Bank of America's shares rose 5.2%, or $2.29, to $46.27 valuing the group at $205.3 billion compared with rival Citigroup's value of $178.8 billion after a price rise of 6.94% on Tuesday.
Bank of America hasn't made any subprime mortgages since 2001 but it has $11.7 billion in CDO exposures. Price said the valuation of the bank's CDOs depends on factors ranging from defaults by borrowers on the underlying mortgages to when the loans were made. "As market conditions change and possibly worsen, there could be additional diminution in value," he said, adding that Bank of America's exposure is "certainly manageable." Webcast
Bank of America's CFO also said at the Merrill Lynch conference that the bank is sitting on a potential gain of more than $30 billion on its investment in China Construction Bank, highlighting the gains that a number of western banks, such as Goldman Sachs, Royal Bank of Scotland and Merrill Lynch, have made from their stakes in large Chinese banks. .
Bank of America paid $3 billion in 2005 for an 8.5% stake in CCB and an option to increase to 19.9% at a very low price. The bank plans to book a gain of about $16 billion on its existing stake in the fourth quarter.
“On paper we have a potential gain in excess of $30 billion,” Joe Price said, adding that it would be able to cash in some of its holding over the next two to three years.
