Commonwealth Bank will demerge its wealth businesses into a separately listed entity to be called CFS Group.
It will include Colonial First State, Colonial First State Asset Management, Count Financial, Financial Wisdom and Aussie Home Loans. That is wealth platforms, funds management, financial planning and distribution respectively.
CFS Group will be a substantial business in its own right, with combined current earnings of around $500m. That would likely place it among the largest 50 businesses on the ASX. CBA won’t receive any proceeds from the divestment and won’t hold a stake in CFS Group. Instead, CBA’s shareholders will receive a proportional stake in CFS Group once the demerger concludes (expected in 2019).
CBA is also considering the sale of its general insurance operations, with a price mooted to be around $1bn.
The CFS demerger will end CBA’s ambition to be a one-stop shop for banking and wealth products. Cross-selling has turned out to be harder than anticipated and more hassle than it’s worth. NAB and ANZ are of the same mind and have been offloading wealth businesses, while Westpac is retaining its wealth operations.
The transaction will make little difference to CBA’s capital and earnings.
However, we view it positively because it should help management focus on the more profitable core banking businesses, which themselves face challenges from increasing competition, lower growth and technological disruption. HOLD.
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