You’ve probably noticed Commonwealth Bank has featured in the news recently. A lot.
They were convicted of banking misconduct a few months ago – and received a hefty fine.
You’d think such a large institution – the second largest Australian bank by asset holdings – would take greater care to ensure consumer protection. But as we’ve learned, bank interests aren’t always aligned with our own…
On Monday 25 June, with fresh news of company restructuring, Commonwealth Bank’s [ASX:CBA] share price dropped 2.30%. So far today, 26 June, the stock has rebounded slightly – up 0.5%. Will these gains persist or will another story hit hard?
Why did this happen to Commonwealth Bank’s shares?
On Monday, markets were hit with CEO Matt Comyn’s overhaul announcement. Commbank will divorce from its wealth management and mortgage broking businesses. This follows similar moves from other financial institutions, such as ANZ. Comyn is strategically separating the core business from the divisions hit by controversy. This move comes just weeks after Commonwealth Bank agreed to pay the largest civil penalty on a private company in Aussie history — 700 million dollars!
Comyn is clearly hoping to repair Comm Bank’s damaged reputation by simplifying and streamlining the company. Hopefully this will restore consumer confidence.
The newly minted CFS group will also be offered on the ASX.
CBA stock was hit Monday after news of the separation broke. The sectors being dissolved produce a profit of nearly 500 million-a-year!
This drop continues a months-long decline. From the inquiry scandal to downgraded profit expectations, Commbank has not fared well in 2018.
What’s next for Commonwealth Bank?
Commonwealth reported that the steep fine will appear on their yearly financial statement.
The wealth management industry was believed to be the ‘next big thing’ in the 2000s for returns. But today banks are wising up to the sector’s pitfalls. For the remaining divisions, Brett Le Meusier accurately sums up their goal: ‘They are cleaning up’. Following the CFS spinoff, Commonwealth Bank will continue working to improve its reputation and bottom line…but will that help their stock price?
Whether CBA manages to recover in coming months will depend on Comyn’s success…
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