CBA takes $1.5b COVID hit, sells CFS stake

Commonwealth Bank will take a $1.5 billion hit for potential defaults on account of COVID-19 and has also announced the sale of a 55 per cent stake in its Colonial First State wealth management unit. 

Australia’s largest bank reported cash profit for the third quarter fell to $1.3 billion, from $1.7 billion a year ago, while net profit also slipped to $1.3 billion, from $1.75 billion a year ago.

The $1.5 billion charge takes the bank’s total provisions to $6.4 billion.

Loan impairment expense was $1.6 billion in the March quarter, or 80 basis points of gross loans and acceptances.

“Our package of support measures has included over $9 billion in support to 100,000 businesses, repayment deferrals on approximately 240,000 loans, reduced interest rates for borrowers, increased interest rates for depositors and waived fees and charges,” chief executive Matt Comyn said.

The bank has approved repayment deferrals on 71,000 business loans, 144,000 home loans and 25,000 personal loans.

It said operating expenses were up five per cent during the March quarter due to additional customer remediation provisions of $135 million.

CBA joins its other rivals in taking a hit from the COVID-19 related restrictions that resulted in economic activity coming to a standstill and led to business closures.

Westpac has taken a $1.6 billion charge. ANZ has put aside $1 billion in COVID-19 provisions, while NAB has made provisions for $807 million. 

CBA said separately it will sell the 55 per cent stake in Colonial First State to global investment firm KKR for $1.7 billion.

The sale price represents a multiple of 15.5 times CFS’s net profit of around $200 million.

“The transaction is consistent with CBA’s strategy to focus on its core banking businesses and to create a simpler and better bank, while allowing CFS to become a more focused standalone business,” the bank said in a statement.

It has previously sold CFS Global Asset Management to Japan’s Mitsubishi, the Comminsure business to AIA as well as stakes in financial advisory businesses.

At 1015 AEST, CBA shares were trading 89 cents, or 1.5 per cent lower, at $58.84 each.

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