Bank of America Corp, hoping to repay $45 billion of government money, is less likely to raise the funds by selling its big stake in BlackRock Inc after the asset manager buys Barclays Global Investors, analysts said.
The strategic value of maintaining an about 34 percent stake in what will be by far the world's largest asset manager may persuade embattled Bank of America Chief Executive Kenneth Lewis to hold on to that stake for as long as he can.
It's a huge chunk of a huge manager, said Nancy Bush, founder of NAB Research LLC. It would probably be the last deck chair that gets thrown overboard.
The size of the stake, in fact, may make it difficult to find a buyer, analysts said, and Lewis' Bank of America already has other, smaller investment management units on the block that should be easier to sell.
The largest U.S. bank now owns nearly half of BlackRock, which it inherited when it bought Merrill Lynch & Co on Jan 1.
While the Barclays takeover will reduce the bank's percentage stake in BlackRock, the resulting company will be roughly twice as large. BlackRock will have about $2.8 trillion assets under management -- more than the U.S. Federal Reserve. Shares of Bank of America closed up 5.8 percent on Friday.
Bank of America's equity investment in BlackRock contributed $65 million to earnings during the first quarter, according to a filing with regulators.
A Bank of America spokesman declined comment.
Bank of America has raised nearly all of the $33.9 billion of equity capital that the government told it to raise last month following a stress test.
Lewis has also said in several comments that he wants to begin repaying much of the $45 billion of money from the U.S. government's Troubled Asset Relief Program by late this year.
The Charlotte, North Carolina-based bank sold part of its stake in China Construction Bank Corp to raise capital. The bank has also been trying to sell First Republic Bank, a private bank, and Columbia Management, its primary investment management business, since earlier this year but has so far not announced a deal for either.
We don't believe the bank needs to sell the BlackRock stake to repay TARP, said Timothy Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York. He said the bank could sell stock or bonds, convert preferred shares to common stock, or sell Columbia to help repay TARP.
BlackRock provides products that Bank of America's brokerage unit, which grew much larger through the Merrill purchase, can sell.
Merrill Lynch was a big fan of BlackRock and Bank of America seems to be as well, said Jeff Harte, analyst with Sandler O'Neill & Partners in Chicago. The BGI acquisition is unlikely to change Bank of America's view of the strategic value of the stake, he explained.
To be sure, part of BlackRock's value to Bank of America is the dividends the bank receives on its investment, which BlackRock Chief Executive Laurence Fink said may be reviewed once it closes the deal and pays off short-term credit facilities. BlackRock pays a $3.12 annual dividend.
But even a reduction in dividend income from the stake is unlikely to detract from Bank of America's interest in retaining a large holding in what will be the largest asset manager in the world and a stable business to offset its more volatile banking units, analysts explained.
It takes the whole rationale for buying Merrill Lynch up another notch, said Bush.
(Reporting by Elinor Comlay; Editing Bernard Orr)