Australia’s Commonwealth Bank reports $1.75 billion cash earnings for the quarter
City Index May 17, 2012 6:26 AM
<p> The Commonwealth Bank of Australia’s (CBA) third quarter numbers should please the market, with cash earnings of $1.75bn perhaps slightly above estimates, but by […]</p>
The Commonwealth Bank of Australia’s (CBA) third quarter numbers should please the market, with cash earnings of $1.75bn perhaps slightly above estimates, but by a very small amount. The good news is that full year earnings estimates won’t need any downward revision, perhaps some tweaking on the upside. CBA reports a June financial year end, unlike its three other peers.
On current market estimates, CBA needs to book around $1.5bn in the fourth quarter to meet market consensus estimates for the full year. That task seems more than achievable. The actual trading update is a little vague, with a brief mention that net interest margins were lower but without quantifying the exact amount.
Still, it doesn’t seem to have been enough to cause group earnings to decline. This business is still growing. Lower impairment costs are a reflection of sound asset quality – something we have been pointing out for some time.
While Australians spend less and pay down more debt, this sees less defaults and bad debt charges. So the impact for banks from lower borrowing volume is somewhat offset by lower bad debt charges.
In the past we have been a little cautious on asset quality among the Australian banks but from the recent set of numbers from all four, there doesn’t seem to be any signs of asset quality concerns among the Australian residential portfolio.
The National Australia Bank’s (NAB) numbers are distorted by its problems in the UK. Westpac and CBA are showing lower impairments and improvement to arrears. All these numbers don’t take into account the most recent 50 basis point cut by the Reserve Bank of Australia (RBA).
Bottom line: Funding remains strong, capital levels adequate and earnings keep growing. What more could investors want in the current market landscape?
The IMF has touched down in Australia as part of a review on our banks and this profit result shows our banks are among the most profitable and well run globally. That doesn’t mean they don’t carry risk, but not the same risk that is bogging down European financial institutions.
CBA shares will probably find some support from this release at the expense of materials stocks, which we think will trend lower in the coming weeks before bottoming. A good scorecard from CEO Ian Narev.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.