Australia’s largest bank is set to get a lot smaller, with the Commonwealth Bank revealing plans to demerge a number of business units into a separately listed company — the same business units under intense scrutiny from the banking royal commission.
CBA has faced intense scrutiny so far this year amid allegations of misconduct in its lending and financial advice divisions, as well as numerous scandals and a conviction for breaching anti-money laundering rules that resulted in a $700 million fine.
In a statement to the ASX on Monday morning, CBA announced that its wealth management and mortgage broking businesses would be divested from the bank.
It also revealed that its general insurance business could soon be sold as it undertakes a “strategic review” of its ownership structure.
“These initiatives will result in the creation of a leading independent wealth management business and enable CBA to enhance its focus on its core banking businesses in Australia and New Zealand and create a simpler, better bank,” CBA said.
Under the plan, a newly formed business called CFS Group will be floated on the stock exchange. CFS Group will comprise Aussie Home Loans as well as a number of wealth management brands, including Colonial First State, Count Financial and Financial Wisdom.
The move comes following intense scrutiny of bank conduct, and the ways in which conflicts of interest between different business units have led to poor customer outcomes.
CBA’s CEO, Matt Comyn, suggested that a demerger will allow the business units to act independently from the bank, fostering new growth opportunities for both groups as a result.
“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,” he said.
“By allowing CBA and 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.”
Mr Comyn added: “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.”
CBA will not retain any shares in CFS Group once the demerger is completed. That is expected to take place next year, once all regulatory, shareholder and board approvals have been obtained.
The announcement comes just days after a break-up of Telstra was also unveiled, which will see the net loss of 8,000 jobs.
Just two hours before CBA made its announcement, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, called on the banking royal commission to dig deeper into CBA and Bankwest.
“The CBA treatment of Bankwest commercial loans has shocked many people and left them searching for answers despite many inquiries. This ultimately was a driver for the royal commission,” Ms Carnell said.
“What is critically important is that individual cases allow an examination of the overarching processes and practices applied by CBA to the Bankwest loan book.
“CBA bought Bankwest at a significant discount (0.8 times book value) and knew from the outset that part of the Bankwest loan book would have a higher level of risk than the CBA book. What was CBA senior management’s objective and strategy to manage this from the outset?”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.