The Commonwealth of Australia Bank (CBA) NZ subsidiary, ASB, recorded a 4 per cent decline in funds management revenue for the last half of 2020 compared to the same period a year earlier, largely due to its exit from the investment administration business.
According to the CBA half-year results released last week, ASB funds management revenue hit $73 million during the final six months of 2020, or $3 million below the corresponding figure in 2019.
The relative revenue decline was “driven by lower income due to the sale of the Aegis business on 2 December 2019”, the CBA report says, that was “partly offset” by higher assets under management (AUM) in the wider business.
In its forecast for the first half of 2021, CBA provides for A$10 million of “income forgone from [the] sale of Aegis”. Auckland-based administration firm, MMC, bought Aegis for an undisclosed sum in 2019, rebranding the platform last year as MMC Wealth.
ASB runs the single-largest KiwiSaver scheme with AUM of almost $13.4 billion as at the end of 2020, Morningstar figures show. The NZ group reported total AUM of $20.6 billion at December 31, according to the CBA accounts, with an average funds value of almost $19.5 billion for the six-month period.
Despite the (ex Aegis) solid half-year performance from its investment operations, the $73 million result pales in comparison with the ASB banking income of almost $1.3 billion over the six-month period.
The relative insignificance of the ASB funds business was reflected in the profit press release last week, which focused as expected on banking operations. Overall, the NZ bank reported a net profit after tax of $614 million in the final half of last year, down 1 per cent against the same-period result in 2019.
Across the Tasman, ASB’s parent bank has been busily retreating from investment and wealth management.
CBA offloaded most of its wealth management subsidiaries over the last couple of year including selling the investment giant Colonial First State Global Asset Management (CFSGAM), insurance group CommInsure, all its third-party financial advice brands as well its remaining 55 per cent interest in platform and product arm CFS to private equity firm KKR.
“The statutory net profit after tax from Wealth Management was $726 million, a decrease of $972 million or 57% on the prior comparative period,” the CBA report says. “The decrease was primarily driven by lower funds management income, transactions costs in relation to the disposal of CFS, and non-recurrence of the impact of the disposal of CFSGAM and the deconsolidation of CommInsure Life in the prior comparative period.”
While CBA was down-scaling wealth management prior to the 2018/19 Australian Royal Commission (RC) into financial services, the watershed event did hasten the process. CBA has to date been hit with fines and other client remediation orders to the tune of over A$2.8 billion as a result of the RC and other regulatory investigations, the report says.
The ‘customer remediation, litigation, investigations and reviews, other matters’ section of the CBA report runs to five pages of small print.
Matt Comyn, CBA chief, said the bank launched a strategy two years ago to “become a simpler, better bank”.
“Since then, we have made significant progress – divesting our wealth management businesses and improving non-financial risk management,” Comyn said.
In a separate statement, ASB chief, Vittoria Shortt, said the bank was adopting a cautious approach to 2021 as the country continues to deal with fallout from the coronavirus pandemic.
“We remain confident about New Zealand’s ability to remain resilient to the challenges of COVID-19, but the past
12 months have taught us all to expect the unexpected,” Shortt said. “That is why we have made a conscious decision to continue to provision for the uncertainties surrounding the pandemic and its possible long-term effects.”
ASB would not pursue any mortgagee house sales this year, she said, while also tapping the Reserve Bank of NZ ‘funding for lending program’ (FLP) to combat climate change initiatives.
The bank plans to firstly offer the discounted FLP loans to business projects targeting lower carbon emissions before opening the cheap lending to the household sector to fund “new energy efficient homes” and the like.
“Banks are able to access this funding with no restrictions on its use,” Shortt said in the release. “However, we believe this funding should work hard for New Zealanders and that channeling it towards productive lending that helps create a more sustainable future is the right thing to do.”