SYDNEY/TOKYO (Reuters) - Commonwealth Bank of Australia (CBA.AX) will sell its asset management arm to Mitsubishi UFJ Financial Group (8306.T) for $2.9 billion in a surprise sale, the latest business to be sold by an Australian financial giant amid unprecedented regulatory scrutiny.
Australia’s biggest lender said it was cancelling plans to list Colonial First State Global Asset Management in favour of a sale to create “a simpler, better bank”.
For MUFG, Japan’s biggest financial group, the acquisition is the first in a grand plan to expand aggressively into overseas asset management, for which it has prepped a 1 trillion yen ($8.8 billion) warchest.
“We are aiming to be within the global top 15 with about 100 trillion yen ($885 billion) in assets under management,” Yutaka Kawakami, executive officer in charge of the bank’s global asset management business, told reporters in Tokyo.
The deal takes MUFG, currently ranked 39th, a long way towards that goal, bringing its total AUM to $727 billion and making it the biggest asset manager in the Asia-Oceania region, it said.
CBA said the price tag was equivalent to 17.5 times Colonial’s annual net profit, far higher than the multiples seen for similar asset managers on the Australian sharemarket.
“On the surface it looks fantastic, for CBA shareholders anyway, and cleans up one of their outstanding issues,” said Matthew Haupt, portfolio manager at Wilson Asset management, which owns CBA stock.
“The Japanese have done it again, they like paying decent multiples,” he added.
Australian finance companies are rushing to offload non-core business units amid widespread expectations that a Royal Commission inquiry will result in a regulatory overhaul of the sector, including new rules forcing banks to split.
The inquiry has exposed a slew of misconduct in the country’s financial sector and slammed what it called a culture of greed. CBA has been the most criticised of Australia’s Big Four lenders although its global asset management arm did not come under fire.
The deal also coincides with a spike in interest from Asian financial firms which see the world’s No. 14 economy as a developed and stable market. Japanese lenders, in particular, are keen to diversify away from stagnant growth at home and are attracted to the non-volatile revenues offered by asset management fees.
MUFG said it was attracted to Colonial’s global reach, both in terms of clients and investment assets as well its strength in Asia and other emerging markets.
It is looking at boutique-type firms that specialise in specific asset classes as likely targets for further acquisitions, Kawakami said.
Shares in MUFG were up 2.6 percent in afternoon trade, while CBA finished 1.6 percent higher, both outperforming their broader markets.
Australia’s top four banks plus AMP have sold $12 billion in assets over the past two years, not including the MUFG deal. The MUFG deal takes CBA’s assets sales to Asian interests in the past year to about A$8 billion.
CBA had planned to bundle Colonial with a host of domestic wealth management businesses in the sharemarket listing. It now plans to pursue the listing without it, prompting analyst concerns about the appeal of the remaining entity.
“It will boost capital levels (but) I’m not sure what it means for their remaining wealth management business,” said Morningstar banking analyst David Ellis.
“I’m not sure how much demand there is for that type of business in Australia,” he added.
($1 = 1.4102 Australian dollars)
($1 = 113.2000 yen)
Reporting by Byron Kaye. Additional reporting by Colin Packham in Sydney and Nikhil Kurian Nainan in Bengaluru; Editing by Edwina Gibbs