CBA will spin off its wealth management and mortgage broking businesses, and will undertake a strategic review of its general insurance business, including considering a potential sale. The bank’s CEO Matt Comyn noted that these changes would allow CBA to become a “simpler and better bank”, and reflected a renewed focus on core banking businesses in Australia and New Zealand.
The largest part of the new company, known as CFS Group, will comprise the following businesses:
Colonial First State, the superannuation and platforms unit;
Colonial First State Global Asset Management, the global investment management arm with more than $207bn of assets under management; and
the third-party distribution businesses, including advice business Count Financial and Wisdom Financial, mortgage broker Aussie Home Loans, and minority shareholdings in CountPlus and Mortgage Choice.
The new company will also own the Count Financial and Financial Wisdom financial advice businesses, the Aussie Home Loans mortgage broking operations, and minority shareholdings in CountPlus and Mortgage Choice.
CBA will retain the salaried financial advice business, Commonwealth Financial Planning, which will form part of its consumer financial services business. This unit will sit within the retail banking services division.
The spin-off will not affect CBA’s 20-year strategy distribution partnership with Hong Kong-based AIA Group in relation to life products.
CBA also announced a number of executive appointments, including its deputy chief executive officer, chief risk officer and head of retail banking services roles, but is yet to it fill its chief financial officer seat.
Separately, CBA received Australian Prudential Regulation Authority (APRA) endorsement for its plan to fix shortcomings in governance, risk management and accountability found by a regulator's inquiry into the bank. The inquiry followed court action against CBA by the Australian Transaction Reports and Analysis Centre, known as AUSTRAC, for breaches of anti-money laundering regulations.
The so-called Remedial Action Plan outlines changes to improve the way the bank runs its business, manages risk and works with regulators. Measures in the plan include cutting senior executive remuneration by more than $60 million and the reduction in non-executive directors' fees announced in August 2017.
We forecast a further deterioration in CBA’s return on tangible equity as it digests regulatory capital headwinds. However, we believe these headwinds are now adequately reflected in CBA’s valuation metrics and we maintain our Hold recommendation with a $76.00 target price.