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Is the Commonwealth Bank of Australia (ASX:CBA) share price a buy?

Tristan Harrison
commonwealth bank

The Commonwealth Bank of Australia (ASX: CBA) share price has dropped another 0.7% so far today, it’s now trading below $70.

The main news out of our biggest bank today is that it’s selling its 37.5% equity interest stake in BoComm Life Insurance Company Limited to Mitsui Sumitomo Insurance Co Ltd for RMB 3.2 billion, which is $668 million.

This sale is expected to result in an indicative after tax gain on sale of approximately $450 million. The carrying value of Commonwealth Bank’s equity interest in BoComm Life was $150 million at 31 December 2017.

After transaction is completed, the Common Equity Tier (CET1) ratio is expected to increase by 13 basis points. This sale follows the announcement of the proposed sale of Commonwealth Bank’s life insurance businesses in Australia and New Zealand to AIA Group and a strategic review of the bank’s life insurance business in Indonesia.

Commonwealth Bank seems to be looking at most of its secondary businesses to see if it can raise funds. The bank, along with its peers of National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC), have come under intense pressure from the Royal Commission – which is the biggest reason for why the share price has dived in recent weeks.

Foolish takeaway

As always, the best reason to own Commonwealth Bank shares is the 8.8% grossed-up dividend yield. However, I don’t think a high yield alone is enough to justify a buy.

The share price has come back a bit but credit growth is predicting to slow significantly due to indebted households unable to take on more debt. Indeed, some economists believe that the level of private debt could cause Australia’s economy to remain sluggish over the next few years. I’d avoid Commonwealth Bank shares until there’s ‘blood’ on the streets.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.