CBA Sells Wealth Management Arm in Favour of Fintech (ASX:CBA)

The Commonwealth Bank of Australia [ASX:CBA] released details this morning of the $1.7 billion sale of its wealth management business, Colonial First State.

At time of writing, the CBA share price is sitting at $59.99, up marginally by .47%, indicating that this move came as little surprise to the market.

Under the terms of the deal, global investment firm KKR will purchase a 55% stake in a deal that valued Colonial at $3.3 billion.

The sale signals the completion of CommBank’s move away from wealth management.

Back in August 2019, the bank sold Colonial First State Global Asset Management to Mitsubishi UFJ Trust and Banking Corporation for a whopping $4.13 billion.

And just about a year earlier CBA ditched its life insurance arm for $3.8 billion to pan-Asian insurer AIA Group.

Out with the old

CBA joins National Australia Bank Ltd [ASX:NAB] and Australia and New Zealand Banking Group Ltd [ASX:ANZ] in a collective divestment from wealth management.

The move comes as competition in Australia’s banking and finance sector ramps up with fintechs beginning to muscle their way in on the big banks’ profits.

Bank Busters! Three Aussie tech plays outsmarting the ‘Big Four’ banks.

Today’s announcement signals CBA is now further distancing itself from ‘old money’.

CBA has also thrown itself into the fintech race alongside market giant Afterpay Ltd [ASX:APT].

In a bid to possibly differentiate itself from its commission-hit peers, CBA CEO Matt Comyn has made investment in technology a directive for the bank.

Of interest is the bank’s US$300 million or 5.5% stake in European buy now, pay later giant, Klarna Group.

The payments product was switched on at the end of January. CBA and Klarna will jointly fund and have 50:50 ownership rights to Klarna’s Australian and New Zealand business.

Klarna?

You’d be forgiven for not knowing about Klarna.

The outbreak of the coronavirus forced the Australian arm to pull its marketing activities.

But according to the Afterpay competitor, they look forward to ramping things up from the end of June.

Klarna is the largest fintech firm in Europe and boasts around 60 million customers and has built a beach head in Australia of 160,000 regular users.

Klarna provides a short-term instalment feature like Afterpay and credit products over longer terms like Zip Co Ltd [ASX:ZIP] — it is available through the CommBank app.

CBA’s stake in Klarna forms a broader strategy of investing in fintechs.

In February, CBA pledged to launch 25 new start-ups over the next five years in a new incubator — to be called X15 Ventures.

X15 was launched in partnership with Microsoft and KPMG and will be a fully-owned CBA subsidiary but operate outside the bank’s bureaucracy.

With fintechs beginning to chip away at the banks’ profits, CBA’s approach to build, not back, fintech start-ups is a bold one.

However, a company that can work independently from the bank but can leverage its brand and balance sheet could be worth keeping an eye on.

For now, we will have to wait and see how Klarna fares against the well-established Afterpay.

And whether a giant backer like CBA can give them the edge.

Regards,

Lachlann Tierney,
For Money Morning

PS: Looking to move away from CBA shares? Learn about the two types of assets (as well as specific stocks) that could be set for a big 2020 if markets continue to go haywire. You can download that here.


Lachlann Tierney is a writer for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently he has been working with Ryan Dinse. Ryan is involved in three publications:


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