The sale of CBA’s life insurance businesses will help strengthen the bank’s capital position as it prepares for the possibility of heavy fines from AUSTRAC, says Moody’s.
CBA’s sale of its CommInsure and Sovereign businesses to AIA Group for $3.8 billion is a “credit positive” for the bank, says Moody’s Investors Service.
A note by Morningstar said “the boost to group capital levels is welcome and a key driver behind the sale” – adding that when completed in 2018, the sale would take CBA’s CET1 ratio to 10.8 per cent.
That would be comfortably above APRA's requirement of 10.5 per cent, which the regulator wants all four of the major banks to reach by 1 January 2020.
Morningstar said the sale of the life insurance businesses was driven by “sound financial reasons”, but the $3.8 billion price tag was lower than the $4 billion the researcher anticipated.
“We consider several years of high profile and damaging customer issues within CommInsure Life have contributed to the decision,” said Morningstar.
However, CBA is currently in proceedings regarding allegations of noncompliance with the Anti-Money Laundering and Counter-Terrorism Financing Act.
The charges have been brought by AUSTRAC and relate to CBA’s repeated failure to properly report millions of dollars of transactions made via its intelligent deposit machines.
“The outcome of these proceedings could result in a financial penalty which, depending on its size, could have implications for the bank’s capital position,” said Moody’s.
Even if CBA takes a hit over the AUSTRAC matter, the potential sale of Colonial First State Global Asset Management could further boost the bank’s CET1 ratio.
Morningstar said the sale of the asset management business could net as much as $4.5 billion for CBA.
The departure of wealth management group executive Annabel Spring was “no real surprise” given the challenges faced by the division during the past several years and the finalisation of the life business sale agreement with AIA, said Morningstar.
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