The Commonwealth Bank of Australia
(ASX: CBA) share price could be a mover after updating the market about its divestment of the Australian life insurance business.
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.
CBA’s CommInsure Life Update
The major ASX bank said it was entered into further agreements to progress the planned divestment of its Australian life insurance business to AIA.
CBA outlined that the divestment has been subject to ongoing regulatory approval processes which has meant uncertainty for the business.
The revised transaction path comprises a joint co-operation agreement, reinsurance arrangements, partnership milestone payments and a statutory asset transfer.
As a result, the total proceeds for CBA are expected to be $2.375 billion, which is a reduction of $150 million from the original sale price.
These arrangements are expected to happen throughout FY20, with CBA to receive around $750 million and distributions by the end of the first half of FY20 and the rest by the end of FY20.
CBA and ASB have also agreed to grant AIA an option to extend the respective Australia and New Zealand distribution agreements from 20 years to 25 years.
CBA CEO Matt Comyn said: “Today’s announcement provides CommInsure Life’s policyholders and staff with more clarity about the future of the business and progresses the simplification of CBA’s portfolio of businesses.
“We are excited by the opportunity to bring together the strengths of AIA and CommInsure Life and are working hard with our partner to develop a new generation of products for CBA’s customers, which deliver excellent customer outcomes.”
One of the main impacts of this sale will be a release of $1.6 billion to $1.8 billion of common equity tier 1 (CET1) capital, increasing the CET1 ratio by 0.35% to 0.40% at 30 June 2019.
Time To Buy Shares?
I wouldn’t personally take any action based on this news, as the change is very small compared to CBA’s overall sale.
Whilst I think of CBA as the best quality of the big ASX banks, and it has a large fully franked dividend yield of 5.6%, I don’t think it’s a buy for most investors. It’s a very large, mature business with slow growth prospects and at the moment I think the potential downsides outweigh the positives due to a shaky economy.
I’d much rather buy the shares in the free report below instead for growth and dividends over the long term.
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