CBA sells funds management business
Recommendation
Commonwealth Bank has announced the sale of the funds management arm of its Colonial First State wealth management business to Japan's Mitsubishi UFJ Trust and Banking Corporation for $4.1bn. The price amounts to 17.5 times earnings for the year to September 2018, which is a good price considering the current antipathy towards Australian funds management businesses.
The sale is expected to complete in mid-2019 and will lift CBA's CET1 ratio to around 11.3%. That's well ahead of the regulatory requirement to get it to 10.5% by 2020, so management is likely to consider returning some capital to shareholders via special dividends or share buybacks.
CBA will still proceed with plans to demerge the remainder of its wealth businesses - Colonial First State, Count Financial, Financial Wisdom and Aussie Home Loans - into a separately listed entity.
Overall, the sale of its wealth management businesses will help CBA focus on its core business of retail banking, which we consider to be the best in Australia. HOLD.
Please note our maximum recommended weighting of 20% for the banking sector as a whole, or closer to 10% for more conservative investors or those with other large property exposures.