The Commonwealth Bank of Australia (ASX: CBA) share price is up 0.35%, perhaps in response to some news.
Commonwealth Bank of Australia or CBA is Australia’s largest bank, with commanding market share of the mortgages (24%), credit cards (27%) and personal lending markets. It has 16.1 million customers, 14.1 million are in Australia. It is entrenched in the Australian payments ecosystem and financial marketplace.
Commonwealth Bank’s Asset Sale
Commonwealth Bank revealed that it has entered into an agreement to sell Count Financial to ASX-listed Countplus Ltd (ASX: CUP). The Countplus share price is up 36% in response to this news.
The major bank believes Countplus is a logical owner of Count Financial because of the historical corporate relationship and share ownership in 15 Count Financial member firms.
As part of the agreement, Commonwealth Bank will continue to support and manage customer remediation issues arising from past issues at Count Financial, including after completion of the transaction, these issues were brought up in the Royal Commission.
Commonwealth Bank will provide indemnity to Countplus to the tune of $200 million and all claims under the indemnity must be notified to CBA within four years of completion.
The $200 million amount represents a potential contingent liability of $56 million in excess of the previously disclosed remediation that CBA has made in relation to Count Financial of $144 million (which was part of the FY19 third quarter trading update). Commonwealth Bank has already provided for the program costs associated with these remediation activities.
What Else Did CBA Say?
The bank currently owns 35.9% of Countplus and intends to sell its shares in an orderly manner after the transaction is completed.
The transaction is expected to occur in October 2019 and to not have a material impact on the bank’s net profit after tax.
In FY19, Count Financial is estimated to incur a post-tax loss of around $13 million.
Is CBA A Buy?
With the CBA share price trading at just over $80, I don’t think it represents good value. It seems people are searching for dividend yields. I think the risks are elevated in terms of the banks due to a wobbly economy.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.