Commonwealth Bank of Australia (ASX: CBA) shares are on watch today after selling BoCommLife Insurance for $886 million.
What happened?
CBA said that the Chinese regulator has granted approval for CBA’s divestment of its 37.5% stake of BoCommLife for $886 million to MS&AD Insurance, which is the ultimate parent company of Mitsui Sumitomo Insurance. This is expected to complete by 31 December 2020.
The major ASX bank said that it has revised the calculation of non-cash gains and losses on the disposal of previously announced divestments including BoCommLife, CFS, CFSGAM, CommInsure Life and Ausiex. The revisions include the finalisations of accounting adjustments for goodwill, foreign currency translation reserve recycling and updated estimates for transaction and separation costs.
The total increase in unaudited post-tax statutory earnings related to its divestments is expected to be around $840 million, which will be recognised as a non-cash item in the FY21 first half result.
The capital impact will lift the underlying/pro forma total common equity tier 1 (CET1) ratio by 29 basis points (0.29%), based on the risk weighted assets at 30 September 2020. Of this, 17 basis points (0.17%) will be recognised once the sale proceeds have been repatriated from Colonial Mutual Life Assurance Society.
The divestment of the equity interest in BoCommLife is expected to complete by 31 December 2020.
What to make of this
It’s good to see that CBA is strengthening its balance sheet by selling its non-core assets. Business buyers seem willing to pay high prices for businesses at the moment because of how low interest rates are.
With everything that’s going on with COVID-19, I can understand why banks want to ensure they’re unquestionably strong during this period.
However, I do think banks need to consider what percentage of their earnings they want to come just from Australian and New Zealand loans. I think earnings diversification is helpful when you’re talking about some of the biggest businesses in the country.
For me, there are better ASX dividend shares to think about like Brickworks Limited (ASX: BKW).
