CBA suspends demerger plans

The update follows the release last week of CBA’s response to implementing the recommendations outlined in the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

CBA has revealed that it has suspended preparations for the demerger in order to support the focus on other priorities, including the implementation of the commission’s recommendations, refunding customers and remediating past issues.

However, the big four bank noted that it would ultimately proceed with the spin-off of its third-party subsidiaries.  

“CBA remains committed to its strategy to become a simpler, better bank, including ultimately the exit of its wealth management and mortgage broking businesses,” CBA stated.

Last June, CBA announced its plans to 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 would comprise:

• Colonial First State
• Colonial First State Global Asset Management
• Count Financial
• Financial Wisdom
• Aussie Home Loans
• CBA’s minority shareholdings in Mortgage Choice and CountPlus

The bank said that the group will benefit from a separate listing on the ASX and give it the “ability to pursue its own growth strategies”.

Implementation of RC recommendations

Last week, CBA outlined the actions it has taken in addressing all 76 of commissioner Kenneth Hayne’s recommendations, which it has now said would be prioritised ahead of the demerger of its third-party businesses. 

With regard to proposed changes relating to the broking industry, the bank said that it supports the introduction of a best interests duty for brokers but would work with the third-party industry to develop a solution to proposed remuneration reform. 

“We will work constructively with the broking industry as changes to remuneration are designed and implemented,” the response read.

When asked to respond to the Coalition’s announcement that it would no longer ban trail from 1 July 2020, CBA’s general manager of third party banking, Adam Croucher, told The Adviser: “Building a strong and sustainable third-party channel has always been a key pillar of Commonwealth Bank’s Home Buying strategy and that remains unchanged.

“We remain completely committed to the mortgage broking channel and continue to invest heavily to support brokers.

“We note the recent discussions about broker remuneration structures and will continue to engage with all of our stakeholders in these discussions.”

Remediation plans

Also cited as a reason for the suspension of CBA’s demerger plans was the group’s desire to focus on its remediation of customers affected by past failings. 

As disclosed in CBA’s half-year results, $1.4 billion has been spent or provisioned to address issues over recent years, including $1.2 billion relating to the wealth management businesses.

The $1.4 billion comprises:

• $610 million already paid to customers or provisioned, for refunds (including interest) to address issues relating to advice quality, fees where no service was provided in the advice business, Credit Card Plus, CommInsure Life Insurance and Loan Protection Insurance, and banking fees and interest
• $650 million in program costs and internal process improvements relating to this work
• $200 million for an indemnity provision for wealth management-related remediation issues and program costs, including ongoing service fees charged by aligned advisers

Aussie responds to suspension of demerger

Following CBA’s announcement, Aussie Home Loans CEO James Symond said it’s business as usual for the brokerage. 

“While this announcement is important in terms of Aussie’s eventual ownership, it doesn’t impact our focus on our customers, brokers and team members,” he said. “We will continue working on our strategy towards building a safer and stronger Aussie, with our focus on supporting our more than 1,000 brokers and 225 franchise stores across Australia.”

He added: “We remain fiercely independent in our operations and approach to providing outstanding customer outcomes, and it is worth noting that 66 per cent of the loans provided by Aussie in 2018 were with lenders outside of the big four banks.

“It is imperative that Aussie and other brokers continue to provide much needed competition in the home loan market, and we see today’s announcement having no impact on that mission,” he concluded.

[Related: CBA CEO weighs in on flat-fee model]