Milton J Madison thinks the Bank of America just made a $3 billion mistake.:

Bank of America announced today that it was taking a US$2.5 billion dollar stake in China Construction Bank [CCB]. Additionally, BoA plans to take an additional US$500 million stake in the upcoming IPO bringing the total stake to 19.9%….
Credit risk management is the essence of what banking is and they still don’t do it. Today’s Standard has an interesting article on credit risk management in banks in China. Risk controls are practically non-existent and I seriously doubt if they will have anything workable in the next 5 years. I was involved with implementing credit risk management processes at various institutions around the world and I know a little about what is going on in Chinese banks these days….
I am just not very bullish on the Chinese banking system and it will be very difficult for them to adjust to the real world on such a large scale. My guess is that BoA will make very little money from their investment in CCB. The Chinese are probably laughing all the way to the bank. This is an old saying where someone gets ripped off the perpetrators laugh while they take the money stolen from you to the bank. But in this case, the criminals sold the bank, in this case probably a bank that isn’t worth very much, so they are probably laughing at BoA’s stupidity.