CBA pondering share buyback after sales

SYDNEY: Commonwealth Bank could launch a share buyback in the next financial year to redistribute capital raised by the sale of its life insurance and global asset management businesses, according to UBS analysts.

Jon Mott and Rachel Bentvelzen, of UBS analysts, described CBA’s $A3.8 billion ($NZ4.1 billion) sale of its Australian and New Zealand life insurance businesses and the potential IPO of Colonial First State Global Asset Management as strategically important but financially immaterial given the operations only contributed about 2% of net profit.

They have assumed CBA will return capital via a buyback during the 201819 financial year, leading them to downgrade their earnings per share estimates for the lender that year by 0.4%.

‘‘We see this as a rational strategic decision by CBA, which should enable it to be more focused on its core banking businesses,’’ the UBS analysts wrote in a note to investors.

‘‘The financial impact is largely immaterial, the analysts said.’’

They said the Austrac moneylaundering allegations that forced the exit of chief executive Ian Narev were a major concern.

‘‘We believe the anti moneylaundering allegations and upcoming change in CEO are likely to be an ongoing distraction,’’ they wrote.

‘‘As a result, despite its business momentum and its share price correction, we believe it will be challenging for CBA to outperform.’’

CBA shares fell about 15% in a little over a month following the Austrac allegations in July.

They have recovered some ground since and were up 71c, or 0.9%, to $76.78 yesterday morning.

CBA said on Thursday that the life insurance sale would be recorded as a loss of about $300 illion, but would release about $3 billion of common equity tier 1 capital.

Global ratings agency Moody’s said the sale was creditpositive but it, too, was similarly wary about the moneylaundering accusations. — AAP