The Commonwealth Bank of Australia has announced that it will demerge its wealth management and mortgage broking businesses into a separate business that will list on the ASX and “pursue its own growth strategies”.
Announced this morning (25 June), CBA will demerge several of its entities into a new group, the CFS Group, which it said will “result in the creation of a leading independent wealth management business” and will include Aussie Home Loans and the minority stake of Mortgage Choice.
The group will comprise:
- Colonial First State,
- Colonial First State Global Asset Management (CFSGAM),
- Count Financial,
- Financial Wisdom,
- Aussie Home Loans, and
- CBA’s minority shareholdings in Mortgage Choice and CountPlus.
The bank has said that the group will benefit from a separate listing on the ASX and give it the “ability to pursue its own growth strategies”.
In a statement, the bank said that the demerger of CBA’s wealth management and mortgage broking business will “provide investors with a direct investment in a leading independent wealth management company made up of a diversified and complementary set of businesses”.
CBA said that the CFS Group therefore offers investors a company with a strong earnings base, with pro forma 2017 NPAT of over $500 million and “a strong capacity to pay franked dividends”.
Speaking of the decision, CBA CEO Matt Comyn said: “The wealth management and mortgage broking businesses are each high-quality franchises.
“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.”
The chairman of the CFS Group will be John Mulcahy. A search for the chief executive officer of the CFS Group is underway.
CBA shareholders will reportedly receive shares in the CFS Group proportional to their existing CBA shareholding while retaining their existing CBA shares. CBA said that it does not intend to retain any shareholding in the CFS Group following the demerger.
Implementation of the demerger is subject to final CBA board, shareholder and regulatory approvals under a scheme of arrangement.
If approved, the demerger is expected to complete in 2019.
CBA to focus on banking
The bank has said that the decision, as well as its strategic review of its general insurance business, CommInsure General Insurance, including a potential sale, will enable CBA to “enhance its focus on its core banking businesses in Australia and New Zealand and create a simpler, better bank”.
“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 businesses and its optimal organisational structure to drive growth and shareholder value for all businesses. It also responds to continuing shifts in the external environment and community expectations, and addresses the concerns regarding banks owning wealth management businesses,” Mr Comyn said.
“By allowing CBA and [the] CFS Group to focus on their core businesses and market-leading positions, we believe the plan will unlock value in both groups for our shareholders.”
CBA’s salaried financial advice business, Commonwealth Financial Planning, will be retained by CBA and will form part of its consumer financial services business within its retail banking services division.
“The ability to provide high-quality banking services and in-house financial advice to CBA customers will remain fundamental to CBA’s focus on customers’ financial wellbeing and we will deliver that through a new model for advice that is safe, simple and scalable,” Mr Comyn said.
CBA will provide further details on its strategy as part of its 2018 Annual Results announcement on 8 August.