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Australia's CBA Sells Wealth Business To Private Equity House

Tom Burroughes, Group Editor, 14 May 2020

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CBA has been streamlining its business and offloading what it regards as non-core assets in recent years, following a damaging scandal that has engulfed much of the Australian banking and wealth sector.

KKR, the private equity group, has bought the investments and wealth management business, Colonial First State. It acquired the entity from Commonwealth Bank of Australia as CBA pushed ahead with spinning off assets.

CBA will receive cash proceeds of about $1.7 billion ($1.1 billion) from KKR. The sale price represents a multiple of 15.5x2 CFS’s pro-forma net profit after tax of about $200 million, KKR and the Australian bank said in a statement. 

The deal fits with CBA’s drive to slim down its business and concentrate on core banking and allow CFS to be a more focused “standalone business”, the statement said.

“The transaction represents the final stage of CBA's previously announced planned exits from various wealth management activities over recent years,” it said.

The Australian bank has been restructuring after a compliance scandal a few years ago, part of a series of failings in the country’s banks that have led to fines and other regulatory measures. In 2018 CBA said it wished to spin off its wealth management and mortgage broking business.

In its statement the firms said they will make a “significant investment programme, strengthening the position of CFS as one of Australia’s leading retail superannuation and investments businesses”.

“We are confident that together with KKR, we can provide CFS with an increased capacity to invest in product innovation, new services and its digital capabilities. We have a shared vision for CFS to be one of the leading superannuation and investment businesses in Australia, offering members greater choice and better value,” CBA chief executive, Matt Comyn, said. 

KKR said it expects to make its investment in CFS primarily from its Asian private equity fund.

For CBA, the sale price is estimated to result in a post-tax gain on sale of around $1.5 billion, which includes estimated post-tax separation and transaction costs for CBA of about $180 million. When the transaction is complete, it will deliver a rise of around $1.4-1.9 billion of Common Equity Tier 1 capital.

CBA has been through a series of compliance problems. In June 2018 it agreed to pay a civil penalty of A$700 million to authorities for failing to immediately report more than 53,500 suspicious transactions, one of the worst financial scandals in the country’s history. The lender said it had entered into an agreement with Austrac, the Australian Government’s financial intelligence agency, to resolve the civil proceedings commenced by the watchdog in the Federal Court of Australia. 

Putting things right
CBA said it remained “committed to putting matters right with clients and authorities following the undertakings made after Australia’s Royal Commission investigated the banking sector, making a series of recommendations. 

“The transaction is not expected to have any impact on ongoing remediation activities that relate to CFS, which will continue as planned. CFS will also continue to assist the Australian Securities and Investments Commission (ASIC) and APRA with existing and any future investigations,” the statement added.

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