The Commonwealth Bank's board is weighing a dramatic retreat from wealth management, with the potential to free up $4 billion in capital by offloading its asset management arm.
As it unveiled a $3.8 billion sale of its life insurance business on Thursday, the country's biggest bank also revealed it was reviewing the future of Colonial First State Global Asset Management (CFSGAM), and would consider a sharemarket float.
If sold, the fund manager could fetch about $4 billion, analysts said, freeing up capital that would likely exceed regulatory demands, and leave CBA more narrowly focused on retail and business banking.
It would also mean dismantling CBA's wealth management arm, a result of its merger with Colonial in 2000, at its time the biggest financial services merger in Australian history.
Life insurance and CFSGAM accounted for almost 80 per cent of CBA's wealth management earnings last year, though there are no plans to sell its financial planning and superannuation platform businesses.
The retreat from wealth comes as banks are being pushed by investors to focus more on the highest-returning businesses where they dominate the market: retail and commercial banking.
A series of scandals involving mistreatment of customers by banks' wealth managers, especially CBA, have also put the spotlight on the conflicts created by "vertical integration" - where banks own related businesses, including wealth managers.
Even so, chief executive Ian Narev said there was no push from senior management or the board to move away from vertical integration, and distributing wealth products remained central to its strategy. The bank was quitting life insurance because this was not its core strength, he said.
"It's by no means a top-down pronouncement on vertical integration, either the [life insurance] sale or the strategic review," he said.
Amid pressure from regulators to end "cross-selling," Mr Narev said staff would instead focus on "needs-based conversations" with customers, pointing to moves to scrap sales targets and other problematic incentives.
"This is all about understanding and meeting needs, not driving product down people's throats," Mr Narev said.
Analysts supported CBA's move to sell its life insurance arm, saying this should address any concerns about its capital position. However, a question mark remains over the size of any fine the bank may receive over a money laundering compliance scandal, which could deter a return of any excess capital to shareholders.
Regal Funds Management portfolio manager Omkar Joshi said CFSGAM could fetch about $3-4 billion, based on the 15 to 20 times earnings multiple the market typically puts on funds managers.
With banks being pressured to set aside more capital by regulators, Mr Joshi said freeing up the capital from selling down its stake in funds management could make strategic sense. Westpac has also sold down its stake in BT Investment Management.
"They've still got a few headwinds potentially coming through, so in that sense it does not hurt to free up a bit of capital if you can," Mr Joshi said.
Irrespective of whether CFSGAM is sold, the life insurance sale is expected to increase CBA's Core Equity Tier 1 capital by 0.7 percentage points.
The story CBA's $4 billion spin-off plan won't end integration first appeared on The Sydney Morning Herald.