Commonwealth Bank of Australia (CBA) has announced a large portion of their Wealth Management business, including Colonial First State (CFS) and Colonial First State Asset Management (CFSGAM), will be demerged.
This will result in the creation of a new entity, the CFS Group, which will likely become a significant large-cap company on the Australian Stock Exchange in its own right. As such, it should then have access to a strong balance sheet and capital, to provide services spanning superannuation, investments and advice.
This is very much a case of Back to the Future in our opinion, as many years ago CBA actually went on a buying spree, taking over First State Fund Managers, Colonial Mutual Life, Prudential Life and many other wealth related businesses. As many of you know we were never advocates of this strategy, so this decision is no real surprise all these years later.
The demerger proposal does provide a means to make a clean break between two valuable but different businesses.
CBA shareholders will receive a proportionate interest in the demerged entity, relative to their CBA shareholding. This enables them to either participate in the growth of the CFS Group over time, or should they prefer, they can also exit and sell on market.
The Group is targeting to have the process finalised by the end of the 2019 calendar year.
Implications for our clients
In the short term there are no issues for you as a client. As one of Australia’s largest providers of superannuation and pension providers, CFS will be business as usual.
Furthermore, we expect that its management will be now able to focus on enhancing products, particularly the FirstWrap and FirstChoice platforms, without the need to justify expenditure to a Board which is currently more focused (understandably) on the operations of the wider bank, which is where the bulk of CBA revenue originates.
A big factor in our use of the banks products stems from its financial strength. Provided the new entity is well capitalised, and therefore able to continue to compete in a fast changing financial environment, we will have no issues whatsoever with our clients remaining with the new institution, either as investors or through use of the platforms.
If you have any questions, please do not hesitate to contact us. You may also like to visit cba.com.au for more information.