The Commonwealth Bank of Australia (CBA) has put its funds management division under notice after successfully off-loading the group’s life insurance unit, including the NZ Sovereign business, last week for almost $4 billion to AIA.
In a market note, CBA said it had “launched a strategic review of its asset management business Colonial First State Global Asset Management (CFSGAM)” with an initial public offering (IPO) highlighted among a “range of options”.
CFSGAM manages about $220 billion including, including about $6 billion on behalf of ASB Group Investments, the wholly-owned subsidiary of ASB Bank, with a raft of other NZ wholesale clients. The CFSGAM-managed ASB fund assets include majority of the more than $7 billion bank KiwiSaver scheme and about $1.8 billion of other retail funds.
Collectively, CFSGAM and CBA have about 150 separate products listed on the Disclose website as available in NZ under the trans-Tasman Mutual Recognition agreement.
CBA says in the statement: “This review will consider long-term Commonwealth Bank shareholder value, including whether a separately listed CFSGAM would be able to better grow its business, serve the interests of its clients and retain key personnel.”
Chris Douglas, Morningstar head of manager ratings Asia-Pacific, said “all the signs” indicated CBA favoured an IPO for CFSGAM with Westpac’s $250 million partial float of subsidiary BT Investment Management (BTIM) in 2007 an obvious model.
“Both shareholders and [fund] investors have done well out of the BTIM float,” Douglas said.
In May this year Westpac reduced its 29 per cent holding in BTIM to 10 per cent with plans to sell-down the remaining stake early next year.
At the time Brad Cooper, head of BT Financial Group (Westpac’s wholly-owned wealth distribution arm), said: “… with the successful diversification of BTIM’s business outside Australia and BT Financial Group’s strategic focus on providing wealth solutions, including through our market leading Panorama platform, Westpac no longer needs to retain a shareholding in BTIM.”
Douglas said unlike BTIM – essentially an Australian equities shop in 2007 – CFSGAM was already a “well-diversified” investment house.
“An IPO could be a good way to go,” he said. “Hopefully, [CBA] doesn’t take as long as ANZ to decide what to do.”
ANZ announced plans to hive off its wealth division over a year ago but has yet to finalise any deal. According to media reports last week, Zurich and MetLife were both in the mix to buy ANZ’s life insurance business with at least one bid over $4 billion.
However, MetLife has subsequently withdrawn from negotiations, the Australian Financial Review reported on Friday.
Successful CBA life bidder, AIA, also expressed early interest in the ANZ insurance book.
In a statement, ANZ said: “The [insurance sale] process is ongoing and ANZ remains in discussion with a number of parties as it continues to work through its options. This includes exploring capital market solutions to create a stand-alone business.”
Ben Trollip, Melville Jessup Weaver (MJW) principal, said ideally the CFSGAM restructure would be resolved quickly.
“A long period of uncertainty would not be good,” Trollip said.
He said consultants would be watching closely to see how investment teams would be treated under the ultimate CFSGAM restructure.
“You can pick holes in any ownership structure – from institutionally-owned to boutique managers,” he said. “I like to see a structure that has strong alignment with the investment professionals and incentives for performance.”
CBA paid about $9 billion in May 2000 for the-then Colonial Mutual group, which included the funds management operation headed by Chris Cuffe. At the time all major Australasian banks were favouring the ‘bancassurance’ model, snapping up insurance, funds management, investment platform and third-party financial advice businesses in a race to own all chinks in the financial services value chain.
Over the last few years all of the big four Australian banks have spun out at least some of their former high-end purchases as the so-called ‘vertical integration’ model came under pressure from regulators and a series of scandals.
Due to retire at the end of this year, NZ-born CBA boss, Ian Narev, told media last week: “Everyone talks about vertical integration as a big theme…
“This is a bottom-up exercise of where we should be and what we should be good at and not a top-down exercise of ‘vertical is dead, what do we do’.”
CBA head of wealth management, Annabel Spring, would also exit the bank at the end of the year with current CFO international financial services, Michael Venter, taking up the COO wealth management “with immediate effect”.
“[Venter] will represent wealth management at the group executive committee following Annabel’s departure, and work on any organisational change resulting from today’s announcements,” the CBA statement says.