KKR provides CBA with chance of a dignified exit from CFS

14 May 2020

The key words to note about the Commonwealth Bank’s decision to sell a 55% stake in Colonial First State to giant private equity player KKR are these:

“CBA is committed to working with KKR in the medium-term to achieve a range of objectives that will create value for all stakeholders though a successful separation of CFS from CBA and the creation of a standalone business. CBA intends to maintain its shareholding in CFS throughout this period and further assess its longer-term intentions thereafter.”

In other words, having earlier attempted and failed to get Colonial First State off its balance sheet almost two years’ ago, the Commonwealth Bank has been handed both cash and breathing room by KKR to achieve the same objective.

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It should not be forgotten by anyone that the Commonwealth Bank had been seeking the substantial demerger of CFS as part of its broader exit from wealth ever since 2018 but found itself overtaken by events, not least the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and allied client remediation obligations.

Thus, in March last year, the CBA said the demerger had been placed on hold.

The transaction with KKR is certainly not a demerger, but it is definitely the next best thing for CBA chief executive, Matt Comyn, delivering the bank cash net proceeds in the order of $1.7 billion while ensuring that, with the help of KKR, CFS gets the level of investment it needs.

One of the key messages delivered by CBA and KKR was that they intended to “undertake a significant investment program, strengthening the position of CFS as one of Australia’s leading retail superannuation and investment businesses”.

This might appear like a motherhood statement but reflects the reality that CFS had not been investment priority for CBA that it had been half a decade earlier with the result that the company lost some of its primacy, particularly in the platforms market.

Comyn reflected this by saying that the two companies were confident that they could provide CFS with the increased capacity to invest in product innovation, new services and its digital capabilities.

The real question now for those watching CFS will be how long CBA maintains its remaining 45% stake and how it chooses to exit.

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Another company gone from Australia. I will be looking to become a barista next year to service all the baby boomers in retirement.

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