Bank of China Shares Skid After Temasek Stake Sale

Bank of China's shares slid as much as 9.4 percent on Tuesday after a key shareholder shed a $567 million stake amid market worries over the lender's exposure to the U.S. subprime mortgage crisis.

Singapore state investment agency Temasek Holdings, state-run Bank of China's second-largest foreign shareholder, unloaded part of its holding on Monday after the end of trading at a discount of 3.5 percent to the stock's closing price.

Shares in Bank of China, which has the biggest subprime exposure among China's large lenders, pared losses to fall 4.5 percent amid a broad Hong Kong market selloff.

"I'm sure the whole subprime issue went through the minds of the Temasek officials involved," said Warren Blight, banking analyst at Fox, Pitt-Kelton in Hong Kong. "It makes sense for them to sort of realize some profit given that they sort of bought into the bank very cheaply ahead of the IPO."

Late last month, Bank of China reported subprime-related exposure of about $8 billion as of the end of September and booked $643 million in provisions and reserves for the third quarter. Its overseas flagship, Bank of China, reported subprime-related exposure of $1.23 billion.

"The whole market is expecting their provisioning to get worse -- as for all the banks with subprime exposure, but I think the market has priced in a lot of that downside," Blight added.

Earlier on Monday, Goldman Sachs had cut its rating on Bank of China to neutral, citing pressure on net interest margins for its foreign exchange assets and exposure to subprime-related mortgage-backed securities and collaterolized debt obligations.

A Temasek unit sold 1.082 billion shares in the lender at HK$4.09 each in a deal handled by Morgan Stanley, a source familiar with the deal said. The pricing came at the bottom of a HK$4.09-HK$4.12 range.

Temasek, which held 10.47 billion shares in Bank of China at the end of last year, confirmed the sale but did not immediately give a reason.

"They know that (BOC) is involved in subprime mortgage. The question is why are they trimming their holdings now? Maybe the losses are increasing. Temasek knows more information than the average investor. Or maybe they think they've had enough profits," said Louis Tse, sales director at VC Brokerage.

Bank of China shares have risen nearly 44 percent from their IPO debut in June 2006 through Monday. "The timing is coincidental with what's happened on Wall Street and HSBC. If they sold today, what kind of price would they get?," Tse added.

U.S. stocks slid on Monday amid mounting credit worries, with Asian markets down on Tuesday morning.

On Monday, UBS downgraded home financing providers Freddie Mac and Fannie Mae to neutral, while Goldman Sachs cut HSBC to sell, saying Europe's biggest bank could need a further $12 billion in provisions for its U.S. subprime mortgage and home equity loans.