Commonwealth Bank of Australia (ASX: CBA) has updated the market to say its balance sheet has just improved by $450 million.
What happened?
CBA just received $450 million of proceeds from AIA under the revised transaction path for the divestment of its life insurance business called CommInsure Life.
CBA said that these proceeds result in a pro forma (calculated by CBA) increase to the bank’s common equity tier 1 (CET1) ratio of 8 basis points (0.08%) on an APRA basis on 30 June 2020.
The bank said that the earnings impact of the CommInsure Life divestment was largely recognised in FY20 when CommInsure Life was deconsolidated in its accounts, the impact of the receipt of the proceeds for its FY21 is not material.
CBA has now received approximately $2.3 billion in total of proceeds so far, being $2.1 billion of cash payments and another $240 million of dividend payments of profits from CommInsure Life. It’s expecting to complete the divestment in the second half of FY21 with the final proceeds of $100 million being expected then.
Summary
It’s good that CBA is improving its balance sheet position. The next six to twelve months could be rough if the economy doesn’t get back to normal quickly. Government stimulus is now going to reduce over the next two quarters, which may be bad news for loans that need payment holidays.
I think there are risks of investing in CBA shares because of COVID-19. For that reason, I’d rather buy more reliable ASX dividend shares like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which I wrote about here.
