Commonwealth Bank to Sell Stake in Wealth Management Arm to KKR -- Update
By Alice Uribe
SYDNEY--Commonwealth Bank of Australia has agreed to sell a
majority stake in its wealth management arm Colonial First State to
global investment firm KKR & Co. Inc., while setting aside 1.5
billion Australian dollars (US$969 million) to address future
impacts of the coronavirus pandemic.
The bank, Australia's biggest by market value, said the sale of
a 55% stake implies a total valuation for CFS of A$3.3 billion. It
expects to receive cash proceeds of approximately A$1.7 billion
The move is part of Commonwealth Bank's plan to focus on its
core banking businesses. The bank said it would work with KKR on
the separation of CFS from the wider group and the creation of a
standalone business over the medium term.
"Commonwealth Bank intends to maintain its shareholding in CFS
throughout this period and will further assess its longer-term
intentions thereafter," it said.
On Wednesday, the bank also reported an unaudited net profit of
about A$1.3 billion in the three months through March. No
comparable figure was released, but it represents a drop of about
26% from the A$1.75 billion profit reported a year ago.
Cash earnings--the measure followed by analysts that strips out
items including hedging volatility and losses or gains on
acquisitions and asset sales--totalled A$1.3 billion.
The bank also lifted provisions amid the ongoing Covid-19
pandemic, setting aside A$1.5 billion for potential loan losses.
Total provisions now stand at A$6.4 billion, representing a
coverage ratio of 1.65% to total credit risk weighted assets.
Lenders including Australia & New Zealand Banking Group Ltd.
and Westpac Banking Corp. reported large falls in profit for the
six months through March and sharply higher provisions as they
grapple with the impact of the ongoing pandemic. ANZ and Westpac
have also deferred decisions on dividends until the economic
outlook is clearer.
Westpac last week said provisions for expected credit losses
include A$1.6 billion set aside for the coronavirus impact.
National Australia Bank Ltd. has made a A$807 million provision,
while ANZ is estimating A$1 billion of credit losses tied to
Commonwealth Bank, which has a market value of more than A$105
billion, said operating income for the latest quarter was flat,
driven by core volume growth, but offset by the impacts of a lower
cash rate. Headline Operating expenses were 5% higher due to A$135
million in additional customer remediation provisions, or down by
1% if one-time items are stripped out.
Chief Executive Matt Comyn said the bank maintained a "strong
capital position," enabling it to deliver half-year dividend
payments totalling A$3.5 billion. He said the additional credit
provision of A$1.5 billion for potential Covid-19 impacts "further
reinforces our already strong provisioning and balance sheet
Commonwealth Bank said it continued to monitor its lending
portfolios and was conducting detailed portfolio stress testing
during the pandemic, noting it was difficult to provide a
"definitive assessment" of longer-term outcomes. It recorded a
loan-impairment expense of A$1.6 billion in the quarter, which
equates to 80 basis points of gross loans and acceptances. This
expense includes the additional Covid-19 provision.
Troublesome and impaired assets increased to A$8.1 billion, from
A$7.2 billion a year ago.
The bank's closely watched Common Equity Tier 1 capital ratio
stood at 10.7% at the end of March, after the payment of the
half-year dividend and the Covid-19 provision.
Write to Alice Uribe at email@example.com
(END) Dow Jones Newswires
May 12, 2020 20:27 ET (00:27 GMT)
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