Banks took an early hammering on the ASX Monday after Wall Street’s slide on Friday and none more so than the Commonwealth which revealed the sale of its general insurance business to South African based owners of the ‘Real’ insurance brand in Australia.
Commonwealth Bank shares fell more than 5% on the day while shares Westpac (down 2.7%), NAB (down 1.6%) and ANZ (down 3.1%) were sold off heavily.
The ASX 200 fell sharply, dropping its value by more than $40 billion as it fell by 1.8% (around 133 points – a bit more than the 111-point drop on ASX futures on Friday night).
Part of the reason was the selloff in the US on Friday which spread into Asia yesterday and continued while a local banking analyst changed the ranking on the CBA in favour of the NAB.
But with the change in sentiment about US rates and inflation there seems to be a change in the way investors here are looking at the banks
A week ago, news of the CBA’s sale of its general insurance business would have been a big positive and sparked renewed speculation about capital management.
Yesterday the news couldn’t hold the line and even though the CBA said it would receive more than $625 million from the sale of its home and motor insurance business to Hollard Group and also receive the unspecified deferred payments if the business hits certain milestones, it wasn’t enough to hold off the sellers.
The Commonwealth has been quitting non-core businesses including wealth management, life insurance, superannuation and financial advice in recent years, (especially after the highly critical Hayne royal commission’s findings). It has also agreed to distribute the insurance to its retail customers for 15 years.
CBA said the sale would result in a $400 million increase in its common equity tier 1 capital, and it would deliver the bank a post-tax gain of $90 million.
CBA already holds surplus capital and is widely expected by analysts to launch a multi-billion share buyback at its full year results in August.
CBA shares closed at $103.69 on Friday (and at $98.06 on Monday)
The sale was booked before the June 30 balance date a week Wednesday but won’t settle until midway through next year given the need for regulatory approvals.
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Meanwhile Bank of Queensland shares also sold off yesterday even though it had news on the progress of its big acquisition of ME Bank.
Bank of Queensland said the Federal Treasurer, Josh Frydenberg has signed off on its purchase of ME Bank.
The approval is expected to be gazetted shortly.
BOQ CEO Mr George Frazis said, “The addition of ME Bank to the BOQ Group will further strengthen our multi-brand strategy, deliver material scale, broadly double the size of our Retail bank, and provide us with geographic diversification. We look forward to the ME Bank team formally joining the BOQ Group very soon.”
Prior to completion, BOQ and ME Bank will continue to operate as separate businesses with no immediate changes expected for customers of either business.
On the basis that completion occurs on July 1, 2021, BOQ says its FY21 financial results will incorporate earnings from ME Bank for the period July 1 to August 31 when the ank’s financial year is ruled off.
BOQ’s current market guidance communicated with the 1H21 financial results excludes the impact of these earnings.
BOQ last week revealed that the 2020-21 results would include the write back of $75 million from an earlier provision from 2019-20 to cover costs of possible defaults in the aftermath of the Covid lockdowns.
The shares lost more than 5% in yesterday’s selloff.
