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* Other U.S. banks also retreating from China investments
* Shares sold at HK$5.70, 3.9 pct discount to Tuesday'sclose
* BofA assumed stake Merrill Lynch bought in 2005 for $3.3billion
By Elzio Barreto and Peter Rudegeair
HONG KONG/NEW YORK, Sept 4 (Reuters) - Bank of America Corp raised $1.47 billion by selling its remaining stake inChina Construction Bank Corp (CCB), ending an eightyear-old investment that generated a paper profit more than fivetimes the original cost.
The Charlotte, North Carolina-based bank sold 2 billion HongKong-listed shares of CCB at HK$5.70 each, a 3.9 percentdiscount to Tuesday's close, a term sheet of the deal seen byReuters showed. CCB's Hong Kong traded shares fell 2.2 percenton Wednesday.
BofA joins a list of Western financial institutions thathave found that their investments in Chinese financial firms didnot give them the foothold they had hoped for in that country.
"The only thing that will be central to banking in Chinawill be China's domestic banks," said Donald Straszheim, head ofChina research at International Strategy & Investment Group inLos Angeles.
Bank of America's exit makes it the second U.S. bank tocompletely sell out of a China bank investment this year, afterGoldman Sachs offloaded its remaining $1.1 billion stakein Industrial and Commercial Bank of China Ltd.
Goldman Sachs grossed $10.1 billion from selling its ICBCstake after investing $2.58 billion in 2006, using internalfunds that invest a mix of client, employee and corporate cash.
BofA's past three sales of CCB stock since August 2011 havehelped raise $16.37 billion, according to Reuters calculations.
The original 9.9 percent stake was purchased by MerrillLynch for $3 billion in 2005 ahead of the Chinese bank's initialpublic offering. BofA assumed the stake when it purchasedMerrill after the bank and brokerage nearly collapsed in the2008 financial crisis.
The Chinese banking system has shown signs of stress, withbad loans picking up as economic growth slows. As a result,several Chinese lenders are preparing to launch equity sales tobolster their capital bases.
But even before the Chinese banking sector weakened, manyU.S. and European banks decided to sell the assets to bolstertheir own capital bases and focus on their main businesses.
Since U.S. and European banks began building stakes inChinese banks, new international capital rules have beenformulated, which will make it more expensive for them to ownshares of other financial institutions.
Bank of America said on Tuesday that it expects to recordabout a $750 million gain before taxes on the stake sale. Withthat profit, its total gains from dividends and selling shareswill amount to nearly $18 billion before taxes, according toregulatory filings between 2009 and 2013.
At the time, Bank of America's then chief executive KennethLewis said the partnership was designed to give Bank of Americamore access to roughly 1.3 billion Chinese consumers, while CCBwould benefit from BofA's U.S. retail banking experience.
The U.S. bank increased its holdings in following years,before paring it down starting in 2009. In 2011, the bank raiseda combined $14.9 billion from selling shares in CCB to a groupof investors that included Singapore's Temasek Holdings.
Bank of America launched Tuesday's sale after a lock-up onits remaining stake expired last month. The bank will continueits strategic partnership with CCB in business areas likecustomer service and sales models, the bank said in a pressrelease.
Bank of America shares closed at $14.25 on Tuesday, upnearly 1 percent from Friday's close.
CCB shares are down 6.8 percent since the beginning of theyear in Hong Kong, outperforming the 9 percent decline in thefinancial sub-index of the Hong Kong stock exchange in2013.
CLEANING UP
Bank of America has been cleaning up its balance sheet sincethe financial crisis. In the bank's 2012 annual report, chiefexecutive Brian Moynihan wrote that the bank had divested morethan $60 billion of assets outside its main businesses whileimproving capital ratios and maintaining its earnings power.
The bank increased its second-quarter profit 70 percent to$3.57 billion. The bank managed to trimoperating expenses by 6 percent while boosting its Basel IIIcapital ratio.
The bank has been particularly active in streamlining itsinternational operations. In recent years Bank of America soldits foreign wealth management businesses to Julius Baer Group and credit card portfolios in Canada, Spain andBritain to various banks and private-equity firms.
Some foreign banks continue to hold on to their investmentsin Chinese lenders. Among them are HSBC Holdings Plc,which owns a 19.9 percent holding in China's Bank ofCommunications Co Ltd and Spain's BBVA's has a 15percent stake in China Citic Bank Corp Ltd.
