The Commonwealth Bank of Australia will hive off the investment, financial advice and mortgage broking parts of its business, in a landmark multibillion-dollar demerger.
In a radical step, CBA will drop the financial services “company-that-does-everything-model”, and become more like a traditional bank that takes deposits and lends to households and businesses.
The new company, called CFS Group, will be listed on the ASX. It will include the Colonial First State brands and Australia’s biggest mortgage broker, Aussie Home Loans.
It will also include financial advice subsidiaries Count Financial and Financial Wisdom.
CBA shareholders will receive shares in CFS Group, but CBA itself will retain no interest in the new company.
CBA also revealed it was looking to sell its general insurance business, Comminsure General Insurance, in a separate transaction.
The news did not impress investors, who rushed to sell CBA stock, pushing the share price down almost 2 per cent as of midday Monday.
What it means for consumers
The major downsizing will reduce CBA customers’ exposure to the conflicts of interest springing from “vertical integration” – the business model that has meant banks control every stage of the financial supply chain, and cross-sell a huge range of products to customers.
These conflicts have led to a string of scandals, particularly in the financial advice arms of the banks. Such scandals were sensationally exposed earlier this year at the banking royal commission.
In ditching the non-banking parts of its business, CBA is following the example of ANZ, which last year made a similar move, selling its entire superannuation and wealth management business.
NAB and Westpac have also moved away from total vertical integration.
But while CBA will spin off two of its financial advice subsidiaries, it will retain control of its own-branded financial advice business, Commonwealth Financial Planning.
CBA’s new chief executive Matt Comyn called the announcement “another step in our stated priority to become a simpler, better bank”.
“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,” Mr Comyn said.
“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 sage, simple and scalable.”
CBA has been at the centre of scandal after scandal in recent months and years. These scandals culminated in a scathing report on the bank’s culture by financial watchdog APRA.
The 111-page report found a “widespread sense of complacency” in CBA’s culture, and a failure “to learn from past mistakes”.
The savaging prompted CBA to issue an unprecedented personal apology to customers, staff and other stakeholders.
“I apologise to the bank’s customers and staff, our regulators, our shareholders and the Australian community for letting them down,” Mr Comyn said.
“We will make the necessary changes to become a better bank and we will be transparent about our progress. This includes establishing a much higher level of accountability and consequence for our actions and the impact we have on customers. This starts with me.”
The demerger is subject to board, shareholder and regulatory approvals. If it receives these approvals the demerger is expected to be completed some time next year.