Australia: CBA switchback shows weakness of Royal Commission
Thursday’s announcement by Commonwealth Bank of Australia (CBA) that it is suspending the sale of its wealth business may trigger similar turnarounds by other big four banks. They have unexpected latitude after the Royal Commission.
Euromoney said earlier in March that the Royal Commission into banking behaviour in Australia was all shouting, little substance. And here’s the thing about banks: they can tell the difference and exploit it accordingly.
On Thursday, CBA provided a “wealth management and mortgage broking businesses update”. The update was that the planned demerger and sale of those operations has been suspended.
And one can assume it has been suspended because the Royal Commission, to widespread surprise, has let banks off the hook.
The single-biggest change that was expected to come out of the Royal Commission was a requirement to separate banks from wealth management arms to avoid the conflicts that have been revealed as being rife in the industry.
The vertical integration model, it was assumed, was over: no longer would banker, fund manager and financial adviser all pitch the same client from the same single organization.
This was so widely expected that every bank bar Westpac has already set about selling those businesses.
Sure, they did so partly because it appears the temper of the time is to be a simplified, basic bank without the reputational and compliance uncertainties that come with a wealth business.