Commonwealth Bank to spin off wealth management, mortgage broking businesses

CBA will demerge and list its wealth management and mortgage broking businesses, and may sell out of general insurance.

CBA will also consider selling its general insurance business. Pic: Hollie Adams

Commonwealth Bank will ditch its wholly-owned mortgage broker Aussie Home Loans as it ramps up its exit from the wealth management industry, as new chief executive Matt Comyn buckles to community pressure about the cross-ownership of wealth and broking businesses.

In a wide-ranging announcement today, CBA has withdrawn its mooted global asset management spin-off and will now attempt to include its financial planning businesses Count and Financial Wisdom, along with John Symond’s former broker, in a new demerger.

In a surprise move, CBA said it would also look to sell its general insurance business alongside the demerger of its wealth arm and mortgage broking business under a new Colonial First State banner, after redrawing a plan to float its global asset management arm.

The bank also made a raft of executive changes, with current chief risk officer David Cohen stepping up to the role of deputy chief executive officer from November. Former head of ANZ’s local institutional bank Nigel Williams is soon to join CBA as its chief risk officer, while former Deutsche Bank executive Pascal Boillat will serve as CBA chief information officer. CBA markets boss Andrew Hinchliff will take over as head of institutional banking and markets and Angus Sullivan is to formally take over as boss of Mr Comyn’s old retail banking division.

CBA’s proposed float of Colonial First State Global Asset Management, known outside the country as First State Investments, will now no longer proceed. The bank had previously said the unit would be listed on the ASX by the end of the year.

CBA said it would now be demerging a larger number of businesses under a new banner called CFS Group, which will include its Colonial First State, Colonial First State Global Asset Management, Count Financial, Financial Wisdom and Aussie Home Loans businesses.

The demerger will free up CBA to focus on its core mortgage lending business across Australia and New Zealand, particularly after the brand damage suffered in its financial planning licensees and Aussie Home Loans through the royal commission into banking and financial services.

Mr Comyn said the announcement responded to “continuing shifts in the external environment and community expectations, and addresses the concerns regarding banks owning wealth management businesses”.

CBA shareholders will receive shares in CFS Group proportional to their existing CBA shareholding. CBA does not intend to retain any shareholding in CFS Group following the demerger.

The bank’s superannuation arm, Colonial First State, has about $135 billion in funds under administration, while CFSGAM has more than $207 billion of assets worldwide.

Along with the sale of the wholly-owned Aussie Home Loans, CBA will also rid itself of its minority shareholdings in ASX-listed groups CountPlus and Mortgage Choice.

Together, the proposed CFS Group had a net profit after tax of more than $500 million last year.

Former Suncorp-Metway chief executive John Mulcahy will still be the proposed chairman of the broadened CFS group once it is spun off from the bank. However, CBA said a search for a chief executive was now underway. It had previously said Mark Lazberger would continue as chief executive of the proposed CFSGAM group.

Mr Comyn said the business units would “benefit from independence and the capacity to focus on new growth options without the constraints of being part of a large banking group”.

“Today’s announcement is another step in our stated priority to become a simpler, better bank and has followed a thorough review of the Group’s businesses and its optimal organisational structure to drive growth and shareholder value for all businesses,” Mr Comyn said.

CBA boss Matt Comyn Pic: James Croucher

CBA will retain its salaried financial advice business, Commonwealth Financial Planning, which will now be housed in its retail banking division.

“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,” Mr Comyn said.

Further details of the demerger will be announced at the bank’s full year results in August. The demerger is expected to be completed in 2019.

CBA’s various wealth and broking arms have been damaged by the royal commission. The commission heard Aussie Home Loans failed to tell the corporate regulator about the misconduct of three of the four brokers who were later convicted for fraud offences. The broking business lacked a dedicated fraud team.

Meanwhile, the royal commission heard CBA’s Count Financial collected money from thousands of people who had no financial planner, received no service and, in some instances, were dead. Count drew on a network of accountants to provide financial advice, but has been exposed as being rife with malpractice after consumer complaints and has been a major target of the royal commission.

New Australian Securities & Investments Commission chair James Shipton on Friday urged the finance industry to “immediately” rid their businesses of conflicts of interests before the royal commission into banking and financial services hands down its recommendations early next year.