The Commonwealth Bank has raised more cash to bolster its capital base after agreeing to sell its stake in Chinese life insurer BoComm Life for $668 million.
CBA needed to offload the 37.5% stake as a condition of its $3.8 billion deal to sell its local life insurance businesses to AIA and so will sell the stake to Japan’s Mitsui Sumitomo.
CBA will make a gain of about $450 million on the sale, it said, raising its common equity tier 1 capital ratio by 13 basis points.
“This transaction represents a further step in simplifying and focusing our portfolio and follows the announcement of the proposed sale of the group’s life insurance businesses in Australia and New Zealand to AIA Group, and the strategic review of the group’s life insurance business in Indonesia,” said CBA’s chief executive, Matt Comyn said in a statement yesterday.
CBA shares fell 0.6 to $68.81 yesterday.
Analysts estimate that CBA could raise roughly a further $500 million when and if it sold down an 80% stake in its Indonesian life insurance business, PT Commonwealth Life. CBA revealed in March it had appointed advisers to handle any sale.
Mitsui Sumitomo is a unit of MS&AD, Japan’s largest non-life insurer and the deal is subject to approval from Chinese regulators.
Australia’s big banks are quitting their Life insurance which have delivered disappointing returns in recent years, due to changes in capital rules and higher-than-expected claim costs (especially in income protection and personal wealth related products).
As a result investors are pushing banks to focus on their core strengths in retail and business banking. The ANZ, NAB and the CBA have all abandoned their big insurance plays in the past couple of years and used the money raised to lift first rank capital to the 10.5% minimum demanded by regulators
The lift in CBA’s capital ratio – a key gauge of bank strength – will go part of the way to offsetting the 0.29 percentage point capital charge ($1billion) imposed by the Australian Prudential Regulation Authority this month, following a string of scandals at the bank, especially the money laundering claims made by the financial intelligence agency, AUSTRAC.
Earlier this month CBA revealed that its third-quarter profits slipped 4% to $2.35 billion, with income drifting lower because of fewer trading days in the quarter, and small fall in its net interest margin and higher costs associated with tighter regulations and the banking royal commission.
