Commonwealth Bank of Australia (ASX: CBA) has announced this morning that it’s going to sell Colonial First State Global Asset Management (CFSGAM) for $4.13 billion to Mitsubishi UFJ Trust and Banking Corporation (MUTB).
Colonial First State Global Asset Management (CFSGAM), also known as First State Investments, has offices in Europe, the US and Asia Pacific regions. At the end of FY18 it managed $213 billion of assets.
The sale price to MUTB is for a total cash consideration of $4.13 billion, which represents 17.5x CFSGAM’s pro forma FY18 net profit after tax (NPAT). Commonwealth Bank has done a good job growing its value – it will report a post-tax gain of around $1.5 billion, which includes post-tax separation and transactions costs of approximately $100 million.
Commonwealth Bank is being true to its word of getting back to focusing on core banking.
CEO Matt Comyn said “CFSGAM is a high quality business that has achieved strong growth under CBA’s ownership for over 18 years. MUTB is one of the largest asset managers in Japan, with a long history and deep capabilities. We believe that CFSGAM’s clients and employees will benefit from MUTB’s supportive long-term ownership.”
Indeed, MUTB is one of the largest financial institutions in the world, with 72.5 trillion yen, or $912 billion, of assets under management (AUM).
This deal, expected to complete by mid-2019, will boost Commonwealth Bank’s Common Equity Tier 1 (CET1) capital by $2.9 billion. This would equate to a pro forma lift of 60 basis points for the CET1 ratio at 30 June 2018.
Commonwealth Bank also took the opportunity to announce two important appointments for its wealth management and mortgage broking businesses, which it calls NewCo.
Jason Yetton will be the CEO, he has been the SocietyOne CEO and Managing Director for two years.
Andrew Morgan will be the chief financial officer (CFO), he has currently the CFO of Wealth Management at CBA.
This seems like a good sale price for Commonwealth Bank and is a step towards ridding itself of the ‘vertical’ setup that caused it so many problems in the Royal Commission. However, Commonwealth Bank still has a long journey ahead of it to get through the Royal Commission.
Just because Commonwealth Bank has a grossed-up dividend yield of 9% doesn’t mean it’s a good buy today.
I’d much rather buy shares of banks in the middle of recession. In-fact, the banks may face poor earnings for at least the next couple of years as the Royal Commission and falling house prices continues.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.