The Commonwealth Bank of Australia said that it would save wealth management and mortgage brokerage businesses and reduce the overall credit to traditional loans by looking into whether the general insurance branch would be removed or not.
Australia’s largest bank also announced a renovated management team that wanted to rebuild its reputation after several scandals uncovered the flaws in the leadership culture and exposed it to tighter regulatory scrutiny and potential monetary penalties.
Following the announcement, CBA’s share fell to 2.7 percent – according to analysts, Australia has avoided possible structural reforms that could be brought about by a strong banking investigation that has shaken the scandalous finance industry.
“Today’s announcement responds to the constant changes in expectations of the external environment and society and concerns about the bank that owns asset management companies,” said Matt Comyn, Chief Executive Officer, in a statement to the Sydney stock exchange on Monday.
The bank announced that it will transfer all its wealth management and mortgage weapons to a new company, the CFS Group, which includes Colonial First State Global Asset Management (CFSGAM) business. Previously announced IPO of CFSGAM will no longer continue.
“What we are really seeing here is the fact that the vertical integration business model is very expensive,” said Hugh Dive, chief investment officer at Atlas Funds Management, owner of the CBA shares.
The CBA and three other major Australian banks have spent years trying to build massive financial adviser networks to recommend their products, but a strong misconduct investigation or the so-called Royal Commission may force the development and sale of financial products.
“We do not know what the recommendations will yet be, but by doing so, they are trying to progress whatever the results of the Royal Commission are,” Dive said.
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Asset management and mortgage brokerage account for approximately 5 percent of the net post-tax CBA profit.
Macquarie expects the combined CFS Group’s market capitalization to be A $ 6.5 billion to A $ 10 billion ($ 4.82 to $ 7.42 billion).
According to Brett Le Mesurier, a senior banking analyst at Shaw & Partners, “Spinoffs” had to be “done,” but the market may be responding negatively to “extra overheads” where the bank has a separately listed entity.
In recent months, CBA shares have been broken, and in June, despite the damaging disclosures in the Royal Commission, dead people said they wrongly received “advice charges” from their accounts and accidentally doubled the interest of thousands of customers.
The inquiry, which will continue until the beginning of next year, is expected to begin to mark the legislative proposals in a preliminary report of the order in September.
However, Australia’s highest lenders have begun to reorganize their business from financial advice units that have resulted in a series of scandals, such as the national Australian Bank. Last month, they said they were thinking of moving out of the asset management arm by 2019.
The CBA said that after the merger in 2019, it will not get a share in the CFS Group.
In a separate statement, the bank explains the six administrative assignments and said that in May, Rob Jesudason, who resigned unexpectedly as chief financial officer, continues to be replaced. The CBA said that it expects to make a permanent appointment after the results of the full year in August.
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