Bank of America climbs on plan to sell China stake

SAN FRANCISCO (MarketWatch) — Bank of America said Monday it plans to sell 13.1 billion shares of China Construction Bank in another move to bolster capital on its balance sheet, an issue that’s been dogging the nation’s largest bank this summer.

The deal, slated to close in the third quarter, is expected to raise $8.3 billion in cash. Bank of America BAC +5.03%  will retain a 5% stake in the Chinese bank CICHY +2.20%  after the transaction.

“This sale of approximately half of our shares of CCB stock is expected to generate about $3.5 billion in additional Tier 1 common capital and reduce our risk-weighted assets by $7.3 billion under Basel I,” said Chief Financial Officer Bruce Thompson in a statement.

Bank of America shares surged 5% to $8.13 in mid-morning trades Monday, making it the top gainer among major U.S. bank stocks.

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Markets Rally after Hurricane Irene

There are thin trading volumes due to late summer vacations and people staying after hurricane Irene, but the markets opened with a rally. Steven Russolillo and Michael Casey explain the market moods on Markets Hub. (Photo: Reuters.)

Better yet, the Chinese bank stock sale, which many investors had figured would eventually happen, follows on the $5 billion investment Bank of America got from Warren Buffett’s Berkshire Hathaway BRK.A +3.00%   BRK.B +3.02%  on Thursday. Read about Buffett’s $5 billion investment in Bank of America.

This is calming jittery investors who had been selling Bank of America’s stock in droves from the end of July through mid-August. Shares of the Dow component have jumped more than 35% since Tuesday, when they hit a 52-week low of $6.01.

The three other financial stocks on the Dow Jones Industrial Average — J.P. Morgan Chase JPM +2.73% , American Express Co. AXP +0.39%  , and Travelers Inc. TRV +4.85%  — all traded higher.

On Monday morning, the financial sector was the top industry gainer on the S&P 500 SPX +2.09% . The Financial Select SPDR ETF XLF +3.21% , which tracks financial companies on the S&P, advanced 2.9% to $13.14. The KBW Bank Index BKX +3.17%  , which consists of the nation’s 24 leading banks, moved up 2.9%.

Citigroup Inc. C +3.85%  rose nearly 4%, Goldman Sachs Group Inc. GS +2.93%  gained 2.9%, and Wells Fargo WFC +2.56%  rose 2%.

Post-Irene insurer shares surge

After Hurricane Irene passed over the East Coast with less damage than anticipated, insurers turned out to be one of the strongest subsectors on the S&P 500. Hartford Financial Services Group Inc. HIG +10.44%  led the charge with shares up more than 9%.

Shares of Allstate Corp. ALL +6.08%  , XL Group PLC XL +6.59%  , Lincoln National Corp. LNC +6.53%  , Genworth Financial Inc. GNW +6.14%   and MetLife Inc. MET +5.59%   all traded 5% or higher.