The new management and board at the Commonwealth Bank is blowing up the corporate structure that David Murray built as CEO decades ago and is now defending as the new chair of the struggling AMP. In an announcement to the ASX yesterday the CBA said it was stripping itself back to being a bank.
The bank said in the statement that it plans to demerge its wealth management and mortgage broking businesses, CFS Group, and undertake a strategic review of its general insurance business, including a potential sale.
CFS Group will include CBA’s Colonial First State, Colonial First State Global Asset Management (CFSGAM) (with a reported $219 billion under management), Count Financial, Financial Wisdom and Aussie Home Loans businesses.
The CBA had said in April that it was looking to float off Colonial First State Asset Management and analysts at the time reckoned it could raise $4 billion and free up capital for the bank to either use in its own operations or return to shareholders.
The announcement is an unstated repudiation of Murray’s decades long belief in this structure and his recent arguments, especially in comments made last week wearing his now hat as the chair of AMP.
John Mulcahy, a former senior CBA executive under David Murray (and a former CEO of Suncorp) will chair CFS Group and a search has started for a chief executive.
This vertical structure was one David Murray built in his decade plus time at the head of the Commonwealth and then strongly defended as head of the Financial System Inquiry for the Abbott government, and defended last week in his first comments as the new chair of AMP.
Now the CBA board led by Catherine Livingstone and new CEO, Matt Comyn reckon there’s only more pain and no gain for the bank with that structure filled full of conflicts of interest and the chance of self-dealing, as the banking royal commission has exposed.
“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.
"It also responds to continuing shifts in the external environment and community expectations, and addresses the concerns regarding banks owning wealth management businesses," CBA chief executive Matt Comyn said in a statement.
"By allowing CBA and CFS Group to focus on their core businesses and market leading positions, we believe the plan will unlock value in both groups for our shareholders."
The ANZ and NAB are heading down a similar route.
Interestingly the CBA is keeping its salaried financial advice business, Commonwealth Financial Planning, which will be rolled into its consumer financial services business within its retail banking services division. That’s were many of the bank’s earlier advice problems were located.
Being salaried and not rewarded with commissions is an easier sell for the CBA, but the structure of the salary packages will have to be made transparent.
The CBA rules off its 2017-18 financial year this Saturday (like so many Australian companies).
It reports in early August and will incur losses of $1 billion or more thanks to the $700 million Austrac fine and hundreds of millions of dollars in extra spending and provisions to compensate customers and improvement its internal compliance and risk management processes.
CBA shares rose 7% to $73.86 last week and yesterday…down they went by 2.3% to $72.16. Last week’s optimism seems to have been misplaced.