Commonwealth Bank of Australia has sold for $439 million its remaining stake in Visa, the payments facilitator originally owned by global banks, after an internal review led the company to reduce the value of some of its software faster than scheduled.
CBA told the ASX on Monday morning that the "rapidly changing technology environment" had prompted the bank to review the value "of certain capitalised software assets, principally relating to digital and direct banking channels".
This review had "resulted in a one-off acceleration of amortisation" totalling $275 million after tax. This means CBA believes the lifespan of some of its digital banking software is shorter than initially envisioned.
The charge will be taken "above the line". The total value of CBA's capitalised software is just over $2.3 billion, according to the bank's 2016 annual report.
However, the impact on cash earnings will be minimal, because the amount of the charge from accelerating the amortisation will be almost offset by the profit to be gained from the sale of CBA's stake in Visa.
CBA said the sale of the rest of its Visa stake, which it gained as part of Visa's float on the New York Stock Exchange in 2008, would deliver CBA an after-tax profit of $278 million.
The proceeds of both the sale of the Visa stake and the software write-down would be reported as a one-off item for the half-year ended December 31, CBA said.
Under accounting rules, costs associated with development of software are assessed against their future benefits and are capitalised as an asset on the balance sheet, where the software is reported as an intangible asset. The value of the assets are then amortised over time and expensed through the profit and loss statement.
Some Australian banks have faced pressure from the market in recent years over the accounting treatment of software investments made "below the line". In September last year, Westpac said it had written off $354 million of software below the line – meaning it did not show up in the cash earnings – but it rejected claims that management bonuses were boosted as a result.
Tech changes game
CBA has a long-time reputation for putting reductions in software valuations above the line.
Other banks have also recognised that the fast-changing technology landscape requires them to expense technology spending at a fast rate.
At its half-year results in May, ANZ Banking Group took a $441 million charge after a change to its accounting policies relating to software amortisation. Without the Visa offset announced by CBA, ANZ's move helped to push down its net profit.
ANZ said in May the change "does not impact the group's total spend on technology but better aligns the application of ANZ's policy with the rapidly changing technology landscape, the increased pace of innovation in financial services and the group's own evolving digital strategy".
Westpac also reviewed its technology amortisation projects, saying in October 2015 that "rapid changes in technology" would lead it to expense more technology project costs than previously, while it also accelerated its amortisation rates for capitalised software.
It is understood CBA's decision to accelerate the amortisation schedules relate to several of its IT projects for digital banking. By making amortisation faster this financial year, the drag against the bank's earnings will be reduced in the next few financial years.
All of Australia's major banks received equity in Visa as part of its $US18 billion March 2008 float, the largest initial public offering in US history.
In late 2008, CBA sold 51 per cent of its stake for $355 million.The sale on the New York Stock Exchange announced on Monday was of its remaining 49 per cent holding in Visa, which has appeared on the CBA balance sheet as a share in a non-controlled entity and had no strategic purpose for CBA.
The other major banks divested their residual Visa IPO stakes in late 2012.
Visa shares listed at $US44 and performed strongly in the years after the financial crisis. They climbed more than 500 per cent in the period to March 2015, when Visa announced a four-for-one stock split. The shares are trading near $US78.