Commonwealth Bank to move forward with $5bn Colonial First float

CBA has greenlighted the float of its global asset management arm in what could be the ASX’s biggest IPO of the year.

Mirvac Group chairman John Mulcahy will become chairman of Colonial First State Global Asset Management once it’s spun-off from CBA.

Commonwealth Bank will float its global asset management arm on the local stock exchange, which is likely to result in the year’s largest initial public offering, likely worth nearly $5 billion.

Colonial First State Global Asset Management, which is known outside the country as First State Investments, will be listed on the Australian Securities Exchange by the end of 2018, the bank said in a statement late on Tuesday.

Former Suncorp-Metway chief executive John Mulcahy will be appointed chairman of the group once spun-off from the bank. Mark Lazberger will continue as chief executive.

CFSGAM has $219 billion worth of assets under its control and a float is expected to be a highlight for the domestic capital markets. CFSGAM’s funds management income for the 2017 financial year was $837 million, slightly down from the previous year. There is an expectation is that a retail offer anywhere between $1bn and $1.5bn would form the part of any IPO.

The listing will be by far the largest to happen this year.

Other major deals in the pipeline are: an IPO of the $4bn Quadrant Energy and the consumer finance operation Latitude, which is owned by private equity firms Kohlberg Kravis Roberts and Varde Partners, along with Deutsche

CBA (CBA) had put up the division for review after the sale of its life insurance arm CommInsure to Hong Kong’s AIA Group for $3.8 billion. As pressure increases on the banking sector — from shareholders, politicians and consumers — to reform the outdated vertically-integrated structure, the potential $5bn float of CFSGAM has CBA refocusing on back-to-basics banking.

“We examined long-term Commonwealth Bank shareholder value and also considered the ability of CFSGAM to serve the interests of its clients, attract and retain key personnel and better grow its business. While CFSGAM has achieved significant growth, scale and diversification under the current ownership structure, the strategic review determined that an independent ownership model would provide greater benefits,” the bank said in a statement.

The float will be subject to market conditions and regulatory approvals. Other directors on the CFSGAM board will be former chairman of Commonwealth Superannuation Corporation Susan Doyle, Ernst & Young executive James Millar, former Macquarie executive Gail Pemberton and former Fidelity boss Richard Wastcoat. Additional directors may be approached to join the board ahead of the spin off.

Analysts say a large portion of the value in CFSGAM is retaining the fund managers and star stock pickers to generate the returns the asset manager and its investors have become used to.

It’s the latest in a string of moves by Australia’s largest banks to strip themselves of problematic or underperforming businesses, in a bid to refocus on home loans and deposits, which are traditionally far more profitable.

ANZ has its wealth arm OnePath up for sale, while National Australia Bank recently sold 80 per cent of its life insurance business to a Japanese company. Westpac, which launched a partial listing of its BT Investment Management in 2007, recently said it would sell down its remaining stake in the $3.8bn fund manager.