The Faber Report

Why BofA Is Exiting HCA Stake

Despite having said the bank does not need to raise new capital, Bank of America CEO Brian Moynihan has been in a hurry to do just that. The latest capital-raising transaction is the sale of the bank's roughly $1.5 billion stake in hospital operator HCA Holdings.

Bank of America
Oliver Quillia for

HCA is buying the stake from Bank Of America, which owns the stake as a result of Merrill Lynch's private equity investment in taking HCA private in 2006.

The transaction is a huge one-time buyback for HCA, which has had a tough time in the market since going public, and is sending those shares up sharply.

As I first reported in April, BofA shuttered its private equity business, the former Merrill Lynch unit, and it has been working through the sale of that portfolio of investments in addition to other non-core assets within the bank.

HCA stock is down sharply from its IPO price, raising the question as to why BofA didn't wait for a potential rebound in the shares—and showing how things have changed at the bank in the short time since HCA went public—when BofA could have sold more of its stake had it wanted to do so.

The 2006 leverage buyout of HCA is still a home run for Bank of America and the other private equity backers, which now are Bain Capital and Kohlberg Kravis & Roberts.

A Bank of America spokesman, when asked about the timing of the sale, said it doesn't make sense for the bank to hold a $1.5 billion investment in a health-care provider given Basel 3 requirements, as such a stake would ultimately require a significant amount of capital held against it.

Now that asset becomes cash and becomes capital for a bank that has raised quite a bit of it lately.

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