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Commonwealth Bank of Australia continues to sell businesses to focus on banking. Photo: Reuters
BusinessBanking & Finance

KKR to buy controlling stake in Commonwealth Bank of Australia’s wealth management business

  • Sale of 55 per cent stake in Colonial First State latest retreat by Australian lender from wealth management following misconduct scandals
  • Commonwealth Bank sold its Colonial asset management unit last year to Japan’s Mitsubishi UFJ Trust and Banking Corporation
Banking & finance
Chad Bray
Chad Bray
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Kohlberg Kravis Roberts (KKR) agreed on Wednesday to buy a controlling stake in Commonwealth Bank of Australia's (CBA) wealth management unit, the latest retreat by the nation’s biggest lenders from the sector following a series of misconduct scandals.

The American private equity giant will pay A$1.7 billion (US$1.1 billion) in cash for a 55 per cent stake in the Colonial First State (CFS) unit, which had A$135 billion in assets under administration at the end of April. The deal represents a multiple of 15.5 times the business’s net profit.

“CFS is one of the most respected providers of investment and superannuation services in Australia with a highly regarded product and service offering to members and advisers,” Scott Bookmyer, head of KKR Australia, said in a statement. “Partnering alongside CBA, we look forward to accelerating CFS’s transformation and further strengthening its market position to deliver long-term benefits to its member base.”

CBA acquired Colonial in 2000 for A$9.4 billion.

The transaction is subject to regulatory review, including by Australia’s Foreign Investment Review Board, and is expected to be completed in the first half of 2021.

The sale is the latest after a Royal Commission report last year found a culture at the nation’s biggest banks that put profit and bonuses ahead of serving their customers, including charging fees to the accounts of clients who had died and widespread mis-selling of products. The report, released in February 2019, led to a series of executive resignations, billions of dollars in compensation to victims and regulatory reforms.

Following the report, the nation’s biggest banks have pulled back from wealth management.

CBA sold its Colonial First State Global Asset Management business to Japan’s Mitsubishi UFJ Trust and Banking Corporation for A$4.2 billion in August.

The transaction also comes at a challenging time for banks globally.

The coronavirus pandemic has infected more than 4.2 million people worldwide and weighed heavily on the global economy as businesses have been forced to shut down for months to stem the spread of the virus that causes the disease Covid-19. The pandemic has forced banks to set aside tens of billions of dollars for bad loans, while historically low interest rates weigh on their bottom lines.

The Australian lender said the KKR deal is consistent with its strategy to focus on its core banking business and would simplify its offerings. KKR and CBA plan to undertake a “significant” investment programme in the business following the deal.

“We are confident that together with KKR, we can provide CFS with an increased capacity to invest in product innovation, new services and its digital capabilities,” CBA chief executive Matt Comyn said in a news release.

This article appeared in the South China Morning Post print edition as: KKR takes controlling stake in Commonwealth Bank wealth manager
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