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Date : 21/06/2021

CBA Shares Plunge With New Business Update On ASX Today

Commonwealth Bank shares have performed extremely well since September 2020. The Federal government’s monetary policy has been one of the driving factors for this performance. Easing of regulations around lending and ultra low interest rates have meant that CBA along with the other Aussie banks have enjoyed a rather favourable operating environment.

One in two Aussies use CommBank for their banking needs and CBA is the largest bank here in Australia. The CBA share price breached the $100 mark late last month and they hadn’t looked back, until today.

Why is the CBA Shares Price falling on ASX today?

Commonwealth Bank of Australia today announced it has entered into an agreement to sell its Australian general insurance business (CommInsure General Insurance) to the Hollard Group (Hollard), and establish an exclusive 15-year strategic alliance with Hollard for the distribution of home and motor vehicle insurance products to CBA’s retail customers in Australia.

The transaction consideration includes $625 million of upfront consideration, together with deferred payments (payable upon achieving certain business milestones) and additional investment from Hollard throughout the 15-year strategic alliance to drive innovation and enhance the customer experience. CBA will also continue to earn income on the distribution of home and motor insurance products.

Commenting on the announcement, CEO Matt Comyn, said: “The transaction is consistent with CBA’s strategy to deliver differentiated customer propositions and the best integrated digital experiences. CBA and Hollard will co-invest in innovative, market-leading products and services that anticipate and meet the changing needs of our customers.”

Upon completion, the transaction is expected to deliver an increase of approximately $400m of Common Equity Tier 1 (CET1) capital, resulting in a pro forma uplift to the Group’s CET1 ratio of approximately 9 basis points, on an Australian Prudential Regulation Authority (APRA) basis, as at 31 March 2021. The Transaction is estimated to result in a post-tax gain on sale of approximately $90m, which includes estimated post-tax separation and transaction costs of approximately $130m.

The announcement however did not reflect well in the market today. Investors added selling pressure and CBA shares declined by 5.42% and closed at $98.06 a share, dipping below the $100 mark for the first time in close to a month.

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