Bank of America 2010 Annual Report Download - page 171

Certain Corporate and Strategic Investments
At December 31, 2010 and 2009, the Corporation owned 25.6 billion shares
representing approximately 10 and 11 percent of China Construction Bank
(CCB). During 2010, the Corporation sold its rights to participate in CCB’s
secondary offering resulting in a pre-tax gain of $432 million recorded in
equity investment income. During 2009, the Corporation sold its initial in-
vestment of 19.1 billion common shares in CCB for a pre-tax gain of $7.3 bil-
lion. During 2010, the Corporation recorded in accumulated OCI a $6.7 billion
after-tax unrealized gain on 23.6 billion shares of the Corporation’s invest-
ment in CCB, which previously had been carried at cost. These shares were
reclassified to AFS during 2010 because the sales restrictions on these
shares expire within one year (August 2011), and therefore, in accordance
with applicable accounting guidance, the Corporation recorded the unrealized
gain in accumulated OCI, net of a 10 percent restriction discount. Sales
restrictions on the remaining two billion CCB shares continue until August
2013, and these shares continue to be carried at cost. At December 31,
2010, the cost basis of all remaining CCB shares was $9.2 billion, the
carrying value was $19.7 billion and the fair value was $20.8 billion. At
December 31, 2009, both the cost basis and the carrying value were
$9.2 billion and the fair value was $22.0 billion. Dividend income on this
investment is recorded in equity investment income and during 2010, the
Corporation recorded dividend income of $535 million from CCB. The invest-
ment is recorded in other assets. The Corporation remains a significant
shareholder in CCB and intends to continue the important long-term strategic
alliance with CCB originally entered into in 2005. As part of this alliance, the
Corporation expects to continue to provide advice and assistance to CCB.
During 2010, the Corporation sold various strategic investments which
included the Corporation’s investment of 188.4 million preferred shares and
56.5 million common shares in Itaú Unibanco Holding S.A. (Itaú Unibanco) at a
price of $3.9 billion. The Itaú Unibanco investment was accounted for at fair
value and recorded as AFS marketable equity securities in other assets with
unrealized gains recorded, net-of-tax, in accumulated OCI. The cost basis of
this investment was $2.6 billion and, after transaction costs, the pre-tax gain
was $1.2 billion which was recorded in equity investment income. In addition,
the Corporation sold its 24.9 percent ownership interest in Grupo Financiero
Santander, S.A.B. de C.V. to an affiliate of its parent company, Banco
Santander, S.A., the majority interest holder. The investment was accounted
for under the equity method of accounting and recorded in other assets. This
sale resulted in a pre-tax loss of $428 million which was recorded in equity
investment income. The Corporation also sold all of its Class B units in
MasterCard Worldwide, Inc. (MasterCard), which were acquired primarily upon
MasterCard’s initial public offering and recorded in other assets. This sale
resulted in a pre-tax gain of $440 million which was recorded in equity
investment income. Also during the year, the Corporation sold its exposure
of $2.9 billion in certain private equity funds recorded in other assets,
comprised of $1.5 billion in capital and $1.4 billion in unfunded commitments
resulting in a loss of $163 million which was recorded in equity investment
income.
As part of the acquisition of Merrill Lynch, the Corporation acquired an
economic ownership in BlackRock Inc. (BlackRock), a publicly traded invest-
ment company. During 2010, the Corporation sold 51.2 million shares con-
sisting of 48.9 million preferred and 2.3 million common shares for net
proceeds of $8.3 billion resulting in a pre-tax gain of $91 million, lowering its
ownership to 13.6 million preferred shares, or 7 percent. The carrying value of
this investment at December 31, 2010 and 2009 was $2.2 billion and
$10.0 billion and the fair value was $2.6 billion and $15.0 billion. Following
the sale, the Corporation’s remaining interest is held at cost due to restric-
tions that affect the marketability of the preferred shares. The investment is
recorded in other assets. During 2009, BlackRock completed its purchase of
Barclays Global Investors, an asset management business, from Barclays
PLC which had the effect of diluting the Corporation’s ownership interest in
BlackRock from approximately 50 percent to approximately 34 percent and,
for accounting purposes, was treated as a sale of a portion of the Corpo-
ration’s ownership interest. As a result, upon closing of this transaction, the
Corporation recorded an adjustment to its investment in BlackRock resulting
in a pre-tax gain of $1.1 billion which was recorded in equity investment
income.
In 2010, a third-party investor in a joint venture in which the Corporation
held a 46.5 percent ownership interest sold its interest to the joint venture,
resulting in an increase in the Corporation’s ownership interest to 49 percent.
The joint venture was formed in 2009 with First Data Corporation (First Data)
creating Banc of America Merchant Services, LLC. Under the terms of the
agreement, the Corporation contributed its merchant processing business to
the joint venture and First Data contributed certain merchant processing
contracts and personnel resources. In 2009, the Corporation recorded in
other income a pre-tax gain of $3.8 billion related to this transaction. The
investment in the joint venture, which was initially recorded at a fair value of
$4.7 billion, is accounted for under the equity method of accounting with
income recorded in equity investment income. The carrying value at both
December 31, 2010 and 2009 was $4.7 billion.
Bank of America 2010 169