The sale of Colonial comes as all of the major banks have been cutting their exposure to wealth management following a series of scandals in the sector, which have left the banks with hefty compensation bills.
Reflecting these ongoing costs, CBA on Wednesday said its bottom line would absorb an extra charge of $135 million for banking and wealth customer refunds.
Chief executive Matt Comyn said the deal would result in a more focused CBA, while Colonial would have greater capacity to invest in products and digital systems, giving members better value for money.
“We have a shared vision for CFS to be one of the leading superannuation and investment businesses in Australia, offering members greater choice and better value,” Mr Comyn said.
The bank and KKR are pledging to invest in the wealth business, which they say will benefit Colonial’s 1 million members by simplifying products, improving service, and upgrading its technology systems.
Partner and head of KKR Australia, Scott Bookmyer, said: “Partnering alongside CBA, we look forward to accelerating CFS’s transformation and further strengthening its market position to deliver long-term benefits to its member base.”
CBA said its medium term plans for Colonial were to create a successful standalone business. CBA said it would keep its stake in the company while this was occurring, and reassess its long-term plans at a later date.
The sale will require approval of the Foreign Investment Review Board and the banking regulator, and CBA said it expected the deal to be completed in the first half of 2021.
In its trading update, CBA said operating income was flat, as loan growth offset a decline of lower interest rates.
As entire industries ground to a halt in recent months due to the pandemic, CBA said it had received requests to defer repayments on 144,000 home loans worth a combined $50 billion.
The bank has also in recent months reduced customers mortgage repayments to their minimum levels by default, a move it says will put more cash in people’s pockets, but consumer advocates have criticised because it will mean borrowers repay debt more slowly.
The bank did not comment on its final dividend, on which it will make a decision at its full-year results in August.
Clancy Yeates is a business reporter.