CBA to demerge wealth management business in Royal Commission wake
Written on the 25 June 2018 by David Simmons
The Commonwealth Bank of Australia (ASX: CBA) has announced its intention to demerge key businesses and re-list them as separate entities on the ASX.
Australia's largest bank will demerge its wealth management and mortgage broking businesses so it can focus on its core banking businesses in Australia and New Zealand.
The demerged business, CFS Group, includes CBA's Colonial First State, Colonial First State Global Asset Management, Count Financial, Financial Wisdom and Aussie Home Loans.
The suite of wealth management businesses will be listed separately on the ASX, giving them the opportunity to grow independently of CBA.
CBA's CEO Matt Comyn says the spun-off CFS Group offers investors an appealing new choice, with pro forma 2017 net profit of over $500 million.
"The wealth management and mortgage broking businesses are each high-quality franchises," says Comyn.
"With innovation and disruption in wealth management increasingly favouring specialist companies, they will benefit from independence and the capacity to focus on new growth options without the constraints of being part of a large banking group."
"Today's announcement is another step in our stated priority to become a simpler, better bank and has followed a thorough review of the group's business and its optimal organisational structure to drive growth and shareholder value for all businesses. It also responds to continuing shifts in the external environmental and community expectations, and addresses the concerns regarding banks owning wealth management businesses."
The wealth management sector has come under intense scrutiny during 2018 via the Royal Commission into the financial services industry. Entities like AMP have suffered from a tremendous fall from grace after its dodgy practices and dirty laundry were aired to the public earlier this year. The demerger of the wealth management business could be construed as CBA's attempt to distance itself from the world of wealth management which is becoming increasingly unpopular in the public's view.
The demerger follows a historic settlement between CBA and AUSTRAC over the anti-money laundering case brought against CBA in August last year.
CBA agreed in early June 2018 that it would pay $700 million in civil penalties to the regulator, which was approved by the Federal Court last week.
The settlement is the largest of its king in Australian corporate history and is worth almost double the amount that CBA initially predicted. At the half year, the bank announced that it had only set aside $375 million to cover the costs of the proceedings.The market has had a negative reaction to CBA's news on Monday morning.
Australian shares are lower, with the ASX200 down 14.7 points at 12.20pm AEST.CBA dropped 2.3 per cent for its biggest intraday percentage drop in nearly seven weeks.
The sentiment emanating from CBA hit the wider financials sector, which slid one per cent.
NAB fell about one per cent, and ANZ slide 0.5 per cent.
Business News Australia
Author: David Simmons