CBA wealth delivers underwhelming result

16-Feb-2017

By Sarah Kendell

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Declining insurance income and a rise in remediation costs contributed to a significant decline in profits for the Commonwealth Bank of Australia’s (CBA) wealth management arm in the first half of the 2017 financial year, despite the bank reporting an overall profit increase of 6 per cent.

Cash net profit after tax for CBA’s wealth management business was $249 million in the six months to December 2016, compared to $376 million in the six months to December 2015, while wealth contributed just 5 per cent to the bank’s overall profit result.

In its investor presentation, CBA noted insurance income over the first half of the 2017 financial year decreased by 33 per cent to $220 million compared to $330 million in the prior corresponding period, while costs in the wealth business rose 3 per cent to $847 million as the bank completed its advice remediation program.

While its share of the wealth platform market through the FirstChoice platform decreased slightly from 10.9 per cent in the six months to December 2015 to 10.8 per cent in the six months to December 2016, the bank noted customer satisfaction remained high, with a recent number one ranking for platform service by research firm Wealth Insights.

CBA also detailed progress made in a number of initiatives over the six months to improve consumer outcomes in its wealth division, including the completion of a review into CommInsure, progressing to the second phase of licence conditions imposed on its advice groups, Commonwealth Financial Planning and Financial Wisdom, and the appointment of a new customer advocate.

Additionally, the bank noted progress made in innovation in wealth management, including its new SuperMatch function allowing members of CBA Essential Super to search for inactive accounts held in their name through the bank’s online Netbank platform at no cost.

Despite the underperformance of the wealth business, overall group profits for CBA were up 6 per cent to around $4.9 billion, with the bank reporting operating income of $13.1 billion for the first half of the financial year and a one cent increase in its dividend payment to $1.99 per share.

Chief executive Ian Narev said the bank was focused on the long term, despite the possibility of global geopolitical events affecting its profits this year.

“Our contribution to Australia’s economic growth must continue to be the combination of strength and innovation that has served Australia well through global volatility,” Narev said.

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