The Commonwealth Bank (CBA) has ridden out the third quarter in style.
The bank Wednesday posted a small rise in unaudited third-quarter profit (for the period to March 31) and sold a 55% stake in fund manager Colonial First State to US investor, KKR for a return of around $1.7 billion to the bank.
That will help offset the raising of a $1.5 billion forward provision to account for possible losses, write-downs, and failures relating to the impact of COVID-19 on customers.
It will also allow the CBA to stay above the minimum top tier capital ratio and avoid a capital raising.
The CBA told the ASX in a pre-opening third-quarter trading update that cash profit rose 4.6% to $1.6 billion while unaudited statutory profit was up 4.6% in the quarter.
The bank made no mention of the final dividend which will be made closer to the full-year reporting date in August – it paid its $3.5 billion interim last week.
Operating income was ‘flat” with “strong operational execution driving core volume growth, offset by the impacts of a lower cash rate.”
Operating expenses (ex notable items) fell 1% “reflecting seasonal factors and ongoing simplification savings while headline operating expenses rose 5% “due to additional customer remediation provisions of $135 million” relating to the Hayne banking royal commission.
The CBA said it had a top tier (CET1) capital ratio of 10.7% after payment of the dividend ad the $1.5 billion forward provision.
The CET1 ratio for major banks is 10.5% in normal times, but APRA has relaxed that for the time being to allow banks more flexibility in handling the impact of the COVID-19 crisis.
The sale of 55% in Colonial First State values it at $3.3 billion, of which the CBA will receive $1.7 billion. The bank said it and KKR will make a major investment in the fund manager.
“The strength and resilience of the Bank remained evident through the March quarter,” CEO Matt Comyn said in the update.
