Commonwealth Bank suspends wealth, mortgage broking demerger

CBA still plans to exit its wealth business, despite bowing to the inevitable and suspending the demerger amid uncertain times.

CBA is suspending its wealth demerger plans. Pic: AAP

Commonwealth Bank has bowed to the inevitable, suspending demerger plans for its wealth management and mortgage businesses to concentrate on customer remediation and implementation of recommendations from the royal commission.

However said there was no change in its overall strategy to become a “simpler and better bank”.

Ultimately, it would exit wealth and mortgage broking — industries that were slammed for governance failures in the royal commission — but the future regulatory environment was too uncertain to proceed.

The strategic U-turn comes after CBA chief executive Matt Comyn last week revealed the company was trawling back over the governance in its wealth management business to determine whether there will be “further consequences” from its fees-for-no-service scandal, highlighted by the banking royal commission.

CBA announced last year it planned to spin off its wealth management and mortgage broking business, as it buckled to pressure over cross-ownership.

However Australia’s biggest lender today issued an update following last week’s full response to the findings of the banking royal commission.

“CBA is prioritising the implementation of these recommendations, refunding customers and remediating past issues,” it said in a statement.

“Accordingly, CBA has suspended preparations for the demerger in order to support the focus on these priorities.”

However CBA said it “remains committed to its strategy to become a simpler, better bank, including ultimately the exit of its wealth management and mortgage broking businesses”.

Wealth management accounted for around 5 per cent of the bank’s profit in its latest annual results.

CBA also broke down the $1.46 billion spent or provisioned on customer remediation since 2014.

The figure, originally disclosed in the bank’s half-year result in February, includes $650 million in program costs and improvement in processes related to remediation, and $610m already paid or set aside for customers.

The final $200m was for an indemnity provision for wealth remediation issues and program cost, including ongoing service fees charged by aligned advisers.

“We are working to complete this work quickly and accurately,” the bank said.

UBS had since mid-2018 been advising CBA on plans to demerge its wealth management arm into a separate entity, which was to be called CFS Group, and include the superannuation and retirement solutions platform Colonial First State with $135 billion in funds under administration, its Colonial First State Global Asset Managent (CFSGAM) business with $207bn in assets, as well as Count Financial, Financial Wisdom and the nation’s biggest mortgage broker Aussie.

But in October CBA announced it would sell the CFSGAM business to Japan’s Mitsubishi UFJ Trust and Banking Corporation for $4.13 billion.

Appearing before the House of Representatives economics committee in Canberra last week, Mr Comyn said remediation would be a cost ultimately borne by shareholders.

He said the bank had looked at each of the individual cases before the financial services royal commission to see whether the conduct could have applied to CBA.

Mr Comyn said management was examining whether the conduct in the financial advice and wealth management business was “at the appropriate levels of accountability” for historical behaviour.

In February Mr Comyn said he intended to implement several of the Hayne royal commission’s landmark findings earlier than required, as he shrugged off suggestions the mortgage broking industry would be hollowed out by scrapping commissions.

Of Commissioner Kenneth Hayne’s 76 recommendations, Mr Comyn said the bank had moved early in a string of areas including farm debt mediation, changing the definition of a small business and not deducting advice fees from lower-cost MySuper accounts.