Wednesday, Royal Bank of Scotland Group Plc, or RBS, (RBS,RBS.L) announced the disposal of its 4.26% equity stake in Bank of China Ltd. (BACHF.PK)for a net consideration of GBP 1.6 billion, after holding it for more than three years. The bank said the decision was based on its policy of disposal of non-core assets that do not meet its strategic objectives.
The sale of 10.8 billion H shares was for HK $1.71 per share, a discount to Bank of China's Hong Kong closing price of HK$1.85 a share Tuesday.
It was on August 18, 2005 that RBS announced its equity investment of GBP 0.9 billion in Bank of China, leading a consortium which acquired 10% of its issued share capital. RBS noted that its stake was diluted to 4.26% following the flotation on the Hong Kong and Shanghai stock exchanges. In 2008, the bank received dividends of GBP 80 million in respect of its stake.
RBS has been one of the hardest hit European banks in the prevailing financial crisis, due to its increased exposure to sub-prime loans and its expensive buyout of ABN Amro bank just before the credit crunch. Late last year, the British Government took control of RBS with about 57.9% stake in the bank, saving it from going haywire.
In October, RBS stated that its Board decided to give considerably greater emphasis on numerous elements of its strategy, and the bank would refocus its Global Markets division on its core strengths of providing risk management, financing, and transaction services to its customers. On a parallel basis, the bank said it would reduce its proprietary risk and significantly downsize its capital-intensive businesses.
The British bank recently indicated that it expects the current market conditions and risk reduction measures to have an unfavorable impact on its fourth-quarter and full-year results. Also, as per certain media reports, it planned to cut 3000 jobs worldwide, mainly in the global banking and markets divisions.
In mid-December, RBS confirmed its exposure to the $50 billion alleged fraud committed by Bernard Madoff, a Wall Street broker and former Nasdaq chairman, with a potential loss of approximately GBP 400 million. RBS said in a statement that it had exposure through trading and collateralized lending to funds of hedge funds invested with Madoff Securities, and a nil value of the assets of these hedge funds due to the fraud could result in the losses.
RBS currently notes that after taking account of tax and the effects of currency hedging, the impact of the stake disposal on the company's capital ratios is expected to be broadly neutral.
Further, RBS said it will no longer record the equity minority interests relating to its original consortium investment in Bank of China in its accounts from January 2009. The loss of these equity minority interests reduces the company's capital ratios by approximately 15 to 20 basis points. As a result of the above actions, the company will benefit from an overall reduction in RWAs of around GBP 4 billion.
With severe hit from the financial meltdown, most Western partners are pulling out from their overseas investments, mainly from China. Bank of China had to face more risks than its peers in the economic troubles, for its greater U.S. subprime exposure. As per reports, the bank took $3.7 billion in write-downs on U.S. mortgage-backed securities in 2008.
In late December, financial services firm UBS AG (UBS) announced the sale of its investment of about 3.4 billion Bank of China H-shares to institutional investors, representing about 1.5% stake. The Zurich, Switzerland-based company purchased the stake in Bank of China in 2005. According to reports, a foundation set up by Hong Kong billionaire Li Ka-shing disposed holdings worth $511 million in the Chinese bank.
Reportedly, with the latest sale, Singapore state investment agency Temasek would be the largest foreign investor in Bank of China, with a 4.1% stake, and the company is considered as being under less pressure to sell the stake. Temasek also holds about 2.1% of China Construction Bank.
Citing the drastic financial situation in the current turbulent international financial environment, Bank of America Corp. (BAC), the largest US bank, sold 5.62 billion Hong Kong-listed shares in China Construction Bank, or CCB, Corp. (CICHF.PK) last week with a reported value of US$2.8 billion. However, the bank still keeps 16.6% stake in the Chinese bank out of its total 19.13%. It was in 2005 that Charlotte, North Carolina-based Bank of America bought 19.133 billion shares or about 8.2% stake in the Chinese bank for a total of US$3 billion, with additional buying later. The stakes were sold at a discount of around 12%.
There is speculation regarding HSBC Holdings Plc's (HSBA.L, HBC) need for raising capital, however, the London-based banking firm reportedly said it won't sell its stake in China-based Bank of Communications.
In its statement, RBS added that it would continue to operate its network of branches across China in the areas of Global Banking & Markets, Global Transaction Services, Wealth, Retail & Commercial banking and Manufacturing businesses, which collectively have about 1,400 staff. In Asia Pacific, the bank has presence in 15 markets serving corporate and institutional clients.
RBS closed Tuesday's regular trading session at $14.93, down $1.77, on a volume of 260 thousand shares.
RBS.L is currently trading on the LSE at 50.50 pence, down 0.60 pence or 1.17%, on a volume of 10 million shares.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.