Kohler’s Overview – CBA: Not Bad, Not Cheap, Not Expensive

I thought the Commonwealth Bank’s result this week was really impressive: net interest margin was squeezed but cost control resulted in a solid 3.5% lift in the bottom line.

My friend James Kirby said in our Money Café podcast this week that you’d be crazy to bet against an oligopoly like the Australian banks, and he’s right: despite all the headwinds – slow credit growth, capital demands from the regulators, rising impairments – Ian Narev’s team is producing a solid performance.

The big problem that all the banks have, CBA included, is wealth management. They all galloped into owning super funds and financial planning networks as a sort of “share of wallet” extension of banking, but it has never worked.

In the latest half, CBA’s wealth management division (Colonial) saw a decline of 3.6%, while retail bank revenue grew 7% and was the main driver of group earnings. It’s increasingly clear that the banks should have stayed out of super and stuck with banking – they have never been able to use their bank networks to sell super and wealth management, even though it seemed like a good idea at the time.

CBA is still the best of the big four, in my view, with return on equity of 16.7%, versus just above 14% for Westpac and NAB and below 13% for ANZ, but with the share price at 15 times earnings it’s not cheap – not expensive, but not cheap.

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About Alan Kohler

As well as being the founder of The Constant Investor, Alan is currently business editor at large of The Australian, finance presenter on ABC news, presenter of the Talking Business channel on Qantas inflight radio and adjunct professor in the business faculty of Victoria University.

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