CBA share price: where next following CommInsure sale?

The Commonwealth Bank of Australia (ASX: CBA) saw its share price fall on Monday after the company announced it had entered into an agreement with Hollard Group to sell its general insurance business, CommInsure General Insurance.

The deal involves an upfront consideration of $625 million and will see Commbank enter into a long-term strategic alliance with Hollard Group to distribute home and vehicle insurance products to the bank’s customers. Positively, the bank noted that it would continue to earn income on the distribution of these products.

The bank also said it anticipated it would receive a pre-finalisation dividend, though the impact of such a dividend was not quantified.

This caps off a flurry of divestment deals from Australia’s big four banks and other financial players, which have seen many of these large-caps spin off their insurance and wealth management businesses – following the Hayne Royal Commission.

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Consequences in focus

CBA provided the market with some top level impacts of its deal with Hollard.

On the bottom-line, the bank said it would book an after-tax gain on the sale of $90 million, inclusive of some $130 million in transaction costs.

Moreover, this deal is expected to positively impact Commonwealth Bank’s capital position – with the bank saying its Common Equity Tier 1 Capital would get a $400 million bump, equivalent to an increase of 8 basis points.

Management noted that they expected the deal to be completed in calendar 2022, though the sale still needs approval from APRA.

CBA share price

Investors responded negatively to this announcement, with the stock down 3.91% to $99.64 by 11:11 am.

Despite that share price weakness, the stock remains well in an uptrend, with CBA up 20% in the last six months.

Beyond CBA, Australia’s other big four banks also faced selling pressure on Monday, with ANZ, WBC and NAB all witnessing substantial price declines.

Management views

Speaking of the deal, Commonwealth Bank CEO, Matt Comyn said:

'The transaction is consistent with CBA's strategy to deliver differentiated customers proposition 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.'

By comparison, Hollard Holdings Australia's Managing Director, Richard Enthoven said:

'We are incredibly excited by today's announcement. THe synergies between CBA and Hollard extend well beyond strategy and market segmentation. We have a shared vision for the future of home insurance, the potential for better customer outcomes, and an exciting role for digital innovation along our entire value chain.'