You really can’t kill the Commonwealth Bank.
There it is – after the worst financial year in its history – bagged for being a rapacious, heartless, greedy company with incompetent leaders, criticised extensively, media reports revealing its worst practices and more, and yet the 2018-19 profit was only down less than 5%, and in fact would have been much higher but for the costs of repairing the damage to customers.
That impost was more than $2 billion – almost double 2017-18’s cost and yet the annual result was only down 4.7% and cash earnings only fell 8%.
But a desperate CBA board has been able to keep shareholders happy after a year that was full tumult, board and senior executive change, a restructure, disciplinary action from regulators, not to mention being criticised in the Hayne Royal Commission.
And shareholders have yet to feel the true impact of the bad publicity (apart from a fall in the share price which is now around 5% under its most recent highs) which is a good outcome.
The shares hit a high of $79.41, and a low of $77.47. The shares ended down 1% at $79 which is really a big vote of confidence from investors, especially the vast number of smallholders.
That’s better than the year low of just over $65 dollars last December, but well under the highs of more than $83 a share reached in late Jun and late July.
The why is easy to see – despite the fall in profit shareholders in the Commonwealth will get an unchanged full-year dividend of $4.31 a share.
That’s despite fears a few months ago that the dividend could be cut to pay for the cost of the impact of the royal commission on its businesses.
Cash net profit fell 4.7% to $8.492 billion while the statutory result dropped more than 8% to $8.571 billion.
Operating income fell 2% to $24.91 billion for the year to June. The bank’s net interest margin fell 5 points over the year to 2.10%, which was unchanged from the December half-year.
The final dividend was set at an unchanged $2.31 a share and the total for the year represents an 88% payout rate.
Customer remediation costs jumped to $2.2 billion from $1.2 billion in 2017-18. Without those extra costs, earnings would have been sharply higher – well above $10 billion for the year to June.
The CBA said that impairment expenses rose 11% in the year to $1.2 billion but that was due to higher bad debts in the business lending area, while there were higher collective provisions for credit cards (with problem areas in parts of western Sydney and Melbourne, according to the CBA).
Housing arrears eased, although the bank said it was seeing “pockets of stress in parts of Perth, Sydney and Melbourne as well.
But the CBA said it saw an uptick in the number of mortgages in negative equity.
“Recent house price softening has resulted in a moderate increase in portfolio loan to valuation ratios including an uptick in accounts in negative equity.
“Based on June 2019 valuations approximately 3.5% of Australian home loan accounts and 4.5% of balances are in negative equity:72% of negative equity relates to Western Australia and Queensland,” the bank said.
CEO Matt Comyn said in the statement issued on Wednesday “While this year’s headline results were impacted by customer remediation costs, revenue forgone for the benefit of customers and elevated risk and compliance expenses, our core business continued to perform well – underpinned by growth in home lending, business lending, and deposits.
“The Group’s balance sheet also remained a key strength. Deposits provided 69% of the Group’s total funding, our Common Equity Tier 1 capital ratio is above APRA’s ‘unquestionably strong’ benchmark, and we have maintained the dividend.
“The progress we are making on divestments further strengthens our capital position. This supports continued investment in our business, and subject to prevailing operating conditions creates flexibility for the Board in its ongoing review of efficient capital management initiatives and the delivery of long-term sustainable returns.”
