Commonwealth Bank Ends Substantial Stake in Australian Finance Group After Returning Shares

Details of the Share Return and Securities Lending Arrangement

The company update reveals that CBA's exit from its substantial holding was executed through a structured securities lending agreement rather than a direct market sale. Specifically, 244,286 fully paid ordinary shares were returned to Merrill Lynch International, acting as the counterparty under a Global Master Securities Lending Agreement between the two parties. This arrangement enabled CBA to retain flexibility in managing its shareholding in Australian Finance Group.

The securities lending contract included provisions allowing either party to return or recall the borrowed securities at any time with notice. Under the terms outlined in the update, Merrill Lynch International, as the borrower, had the right to return securities early, and CBA, as the lender, could recall securities before any scheduled return date. These reciprocal rights are standard in securities lending agreements and offer operational flexibility to both parties.

CBA’s Related Entities and Corporate Structure

The update lists a comprehensive schedule of Commonwealth Bank related bodies corporate that collectively constituted the substantial holder. These entities encompass various operational sectors including ASB Bank Limited and its subsidiaries, investment management firms like Colonial First State Investments Limited and Avanteos Investments Limited, aircraft leasing companies, captive insurance operations, and technology ventures such as Doshii Connect Pty Ltd. This diverse portfolio highlights CBA’s intricate corporate structure spanning banking, investment management, insurance, aviation services, and fintech.

The extensive list of related entities in Annexure A illustrates CBA’s interconnected business divisions and holdings. From aircraft leasing firms such as CBA A320 6749 Pty Limited and CBA B738 39822 Pty Limited to specialised financing entities like CBA Specialised Financing Pty Limited and securitisation management services, the schedule demonstrates how CBA operates through multiple subsidiaries to conduct different facets of its financial services. The inclusion of international entities such as CBA Europe Limited, Commonwealth Bank of Australia (Europe) N.V., and those registered in Singapore and New Zealand further underscores CBA’s global operational reach.

Australian Finance Group’s Role as a Leading Non-Bank Mortgage Operator

Australian Finance Group Limited is a significant non-bank lender and mortgage broker network participant in Australia’s residential mortgage market. The company operates across multiple segments of the residential lending ecosystem, combining direct lending with a network of mortgage brokers who originate and distribute home loans. This dual-channel model has positioned AFG as a major player in Australia’s expanding non-bank mortgage sector, which has grown substantially as an alternative to traditional bank lending.

The Australian residential mortgage sector has experienced notable shifts recently, with non-bank lenders and mortgage brokers increasing their market share. AFG’s business model aligns with this trend, leveraging both its lending operations and broker network to capitalize on market opportunities. The company’s ability to distribute mortgages through an established broker network alongside direct lending offers diversified revenue streams and customer acquisition channels. CBA’s prior substantial holding in AFG provided exposure to this dynamic non-bank mortgage sector.

Securities Lending Agreement with UBS AG and Colonial First State

Besides the Merrill Lynch International arrangement, the update discloses a separate Australian Master Securities Lending Agreement between UBS AG and Colonial First State Investments Limited, a CBA related entity. Under this agreement, Colonial First State Investments Limited borrowed securities, with details on share quantities and transactions provided in Annexure B. This dual-agreement approach indicates that CBA managed its substantial holding through multiple counterparties and lending structures, enhancing operational and risk management flexibility.

The UBS AG agreement operates under similar terms to the Merrill Lynch deal, with neither party able to exercise voting rights attached to the borrowed securities. Both borrower and lender retained rights to return or recall securities early with notice. Utilizing two lending counterparties—UBS AG and Merrill Lynch International—demonstrates CBA’s diversified strategy in managing shareholding logistics and counterparty relationships, providing optionality in handling its exposure to Australian Finance Group shares.

Voting Rights Limitations Under Securities Lending Terms

A critical aspect of both securities lending agreements is that neither Merrill Lynch International nor UBS AG (via Colonial First State Investments Limited) could exercise voting rights attached to the borrowed shares. This restriction ensures that while CBA transferred physical possession and economic exposure of the shares, voting control remained governed by the lending agreement. The prohibition on voting rights exercise is a standard safeguard in securities lending to prevent borrowers from influencing corporate governance.

This voting rights limitation reflects securities lending as a financing arrangement rather than a transfer of beneficial ownership. Although borrowers receive economic benefits and risks, the original lender—CBA—retains ultimate voting control. This distinction is crucial during corporate actions or shareholder meetings, where voting rights impact significant decisions. The explicit contractual ban on voting rights exercise provides legal clarity and prevents conflicts of interest that could arise if borrowers influenced corporate outcomes while holding shares temporarily.

Timeline of Events Leading to CBA’s Substantial Holding Cessation

The cessation of CBA’s substantial holding occurred over a brief period. The prior substantial holding notice was dated 15 July 2026, coinciding with the return of 244,286 shares to Merrill Lynch International through the borrow decrease transaction. CBA ceased to be a substantial holder on 16 July 2026 and lodged the cessation notice the same day. The company update formally documenting the cessation was dated 17 July 2026, one day after the substantial holding ended.

This rapid timeline reflects the swift execution of CBA’s share return. The borrow decrease on 15 July 2026 triggered the change in CBA’s relevant interests in Australian Finance Group voting securities, leading to immediate cessation of substantial holder status. The prompt lodging of the cessation notice with Australian Finance Group and the Australian Securities and Investments Commission (ASIC) complied with regulatory requirements under Section 671B of the Corporations Act. This sequence ensures timely market disclosure of material changes in substantial shareholdings.

Regulatory Framework for Substantial Holding Disclosures

CBA’s company update was lodged under Section 671B of the Corporations Act 2001, which governs substantial holding notices. Under this law, persons whose relevant interests in voting securities fall below the 5% threshold must formally notify cessation of substantial holder status. The Form 605 used here is the prescribed form for such disclosures to both the company and ASIC. This framework promotes transparency for investors and market participants regarding significant changes in substantial shareholdings at ASX-listed firms.

The regulatory requirements mandate detailed disclosure of each change in relevant interests, including the date, parties involved, nature of change, consideration, class and number of securities, and votes affected. CBA’s update complies by identifying the borrow decrease transaction, specifying the 244,286 shares returned, and naming counterparties. It also discloses securities lending agreements relevant to the substantial holding, with comprehensive annexures detailing arrangements with Merrill Lynch International and UBS AG.

Impact on Australian Finance Group’s Shareholder Base and Capital Structure

CBA’s cessation as a substantial holder marks a significant shift in Australian Finance Group’s shareholder register and ownership structure. Previously, CBA’s collective shareholding through related entities exceeded 5% of AFG’s issued capital. Returning 244,286 shares reduced CBA’s stake below this threshold, disqualifying it as a substantial holder under Corporations Act rules. This change may affect AFG’s capital management, investor base composition, and future funding strategies.

For AFG investors, CBA’s exit as a substantial shareholder could prompt reassessment of the company’s strategic partnerships and capital structure. CBA’s prior substantial holding might have been viewed as providing stability or strategic advantages, while its withdrawal could alter market perceptions of AFG’s shareholder quality and positioning. The shift in shareholding composition may influence future trading dynamics and investor demand for AFG securities, depending on sentiment about CBA’s departure.

Securities Lending Market Context and CBA’s Asset Management Approach

CBA’s use of securities lending to manage its Australian Finance Group shares reflects common practices among large institutional investors in Australia. Securities lending allows shareholders to generate returns on dormant holdings while maintaining exposure or to tactically adjust portfolio positions. The Global Master Securities Lending Agreement with Merrill Lynch International and the Australian Master Securities Lending Agreement with UBS AG are standard market instruments facilitating such transactions.

By engaging two major financial counterparties—Merrill Lynch International and UBS AG—CBA demonstrates participation in sophisticated securities lending markets. Both counterparties are established global players with advanced operational capabilities for managing borrowed securities and settlements. The documented terms clarify transaction mechanics, including borrowing dates, rights to return or recall securities with notice, and explicit voting rights restrictions. These arrangements exemplify how institutional investors optimize shareholding management through structured financial instruments.

Notification Addresses and Compliance Governance

The company update specifies addresses of key entities involved in the substantial holding, including Commonwealth Bank of Australia at Commonwealth Bank Place South, Level 1, 11 Harbour Street, Sydney NSW 2000, Australia. Addresses for Colonial First State Investments Limited and Avanteos Investments Limited are listed as Level 15, 400 George Street, Sydney NSW 2000, reflecting their shared office within CBA’s corporate structure. These notification addresses ensure Australian Finance Group and ASIC can contact relevant parties regarding the substantial holding cessation and related inquiries.

The documentation also identifies responsible officers, with Vicki Clarkson named as Company Secretary of Commonwealth Bank of Australia. Her signature and dating of the form provide formal attestation of the accuracy and completeness of the disclosed information. This governance framework ensures institutional integrity and creates an audit trail supporting regulatory compliance.