BofA Spins Off Its Last PE Fund

Bank of America Corporation (BAC - Analyst Report) has finally completed the spin-off of its last largest private equity (PE) fund, which has led to the creation of a new company named North Cove Partners. The new company has more than $6 billion assets under management (AUM)

North Cove stated that it would continue to manage PE investments on behalf of BofA and also aim at raising a new PE fund in the near future. North Cove further commented that it would be led by the managing partners – Brain Gorczynski, Chris Birosak and Angel Morales. The new company would be based in New York and would start operating with 15 investment professionals. It would target investments in market leading, high-quality companies and would also continue to focus on those sectors where it had invested in the past.

It was in April 2011 that BofA had announced the spin-off of the fund in order to comply with the financial reform following the recession. BofA had also stated that it had no plan to further invest in this PE fund.

However, this is not BofA’s first attempt to go asset light, vending and spinning-off non-essential businesses and units. Earlier this week, BofA had announced the completion of sale of its insurance subsidiary Balboa Insurance Company and affiliated entities to QBE Insurance Group. The company had inherited Balboa from Countrywide Financial, which it acquired in 2008.

Furthermore, in 2010, BofA took several non-core asset shedding actions. Among others, in November, the company sold 43.6 million of its BlackRock Inc. (BLK - Analyst Report) shares and also sold an additional 2.5 million shares of BlackRock to Japan’s third-biggest bank Mizuho Financial Group Inc. Also, in July 2010, BofA completed the sale of First Republic Bank (FRC - Snapshot Report) for $1.86 billion to a group of investors led by Colony Financial Inc. (CLNY - Snapshot Report) and General Atlantic LCC.

BofA’s plan to boost dividend in the second half of 2011 was rejected by the Federal Reserve following the release of the second round stress test results in March. Therefore, BofA will likely continue with its non-core asset shedding activities until its capital strength improves and balance sheet fortifies further. Additionally, the company is also required to comply with regulatory provisions.

Currently, BofA retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. Also, considering the fundamentals, we maintain a long-term “Underperform” recommendation on the stock.