CBA has put the $4 billion spin-off of its wealth management and mortgage broking business on hold indefinitely to deal with the fallout from the banking royal commission.
In a statement to the ASX before the market opened, CBA said it was still committed to the demerger but, after a review, it needed to focus on addressing the commission's recommendations first.
"CBA is prioritising the implementation of these recommendations, refunding customers and remediating past issues," the bank said in the statement.
"Accordingly, CBA has suspended preparations for the demerger in order to support the focus on these priorities.
"CBA remains committed to its strategy to become a simpler better bank, including ultimately the exit of its wealth management and mortgage broking businesses."
The bank has so far spent around $1.4 billion to address its failings in recent years.
The bulk of this, or $1.2 billion, has been in the wealth business.
The planned demerger had bundled several of its non-core businesses built up over the past two decades into one business dubbed NewCo.
NewCo was intended to house:
- Aussie Home Loans — CBA's mortgage broking business
- Colonial First State — its superannuation, investment and retirement business, which manages more than $135 billion in funds
- Count Financial and Financial Wisdom — its financial advice businesses
- CBA's minority stakes in Mortgage Choice and investment advice company CountPlus
Those companies had combined earnings of around $300 million this year.
On a multiple of 10 times earnings it would have reaped CBA $3 billion, or close to $4 billion if CBA had applied an earnings multiple of 13 times earnings.
'Pragmatic' decision
Shaw and Partners bank analyst Brett Le Mesurier said pulling the demerger was a sensible approach, and the bank probably should have done it earlier.
"It is just pragmatic," Mr Le Mesurier said.
"Getting the deal done, with all the work still to do, would have been very difficult and probably would have cost them more."
Mr Le Mesurier said it appeared CBA had been too hasty in its desire to offload the problematic businesses.
"I suspect they panicked too early," he said.
Mr Le Mesurier said CBA also needed to work out whether NewCo even had enough money to pay for future remediation liabilities before restarting the demerger process.
