Comm Bank Sold Off 8% on Flat Margin Profile

CBA shares took a towelling yesterday from investors suddenly nervy that the country’s biggest bank was running into still waters and losing momentum.

At its lowest the share price was down 8.3% to $98.75. This wiped $8.93 off the stock price, and saw the bank’s market capitalisation fall by nearly $15 billion to $169 billion.

Commonwealth Bank shares ended down 8.1% to $98.99.

The CBA’s costly slide hit other banks. ANZ Bank shares lost 2%, Westpac down 1.7%, and NAB down by 1.1%.

Macquarie Group shares though rose 0.6% to a new high of $203.63 even though it is a big funder of so-called white label mortgages.

The reason for the CBA’s sell-off was in the details of the trading update for the September quarter, especially the comment that its net interest margin (NIM) – which compares funding costs with what the bank charges for loans – was “considerably lower”.

The bank reported net interest margin of 2.03% for the year to June (down 4 points from the previous year). The use of the phrase ‘considerably lower’ would suggest the NIM dropped well below 2%.

That saw the CBA report a flat first quarter for 2021-22 with income down, expenses a touch lower and lower bad loan losses.

As well the bank said it lifted home lending by $10.1 billion in the quarter – all well and good.

The bank reported unaudited cash earnings of $2.2 billion for the three months to September (and statutory earnings of around $2.3 billion).

Ostensibly that was 20% above the figures for the September, 2020 quarter cash earnings came in around $1.8 billion and statutory earnings at $1.9 billion.

The comparison isn’t strictly accurate because of the differences in what was happening in the economy, although some would argue that the long lockdowns in Sydney, Melbourne and ACT in the quarter was a major disruption this year.

The CBA said the latest quarter’s “Operating performance (was) flat “on the average of the March and June quarters this year”.

It was around 9% down on the average of the March and June quarters, a figure that also helped spook investors.

“Income (revenue) down 1%, or flat excluding the divestment of Aussie Home Loans (AHL), with above system volume growth helping to offset continued margin pressures and lower non-interest income. Expenses down 1%, with lower remediation costs offsetting higher staff expenses.” the bank said in Wednesday’s statement.

The loan impairment expense of $103 million in the quarter was a low 5 basis points of average Gross Loans and Acceptances and credit provisions were broadly unchanged, “continuing to reflect sound portfolio credit quality and a cautious approach to provisioning as the Australian economy recovers from the impact of COVID-19 restrictions.”

CBA CEO, Matt Comyn said in the ASX update that “Through the first quarter of FY22, our focus has remained on supporting our people, customers and communities as the economy recovers from the impact of COVID-19.

“Our focus on operational execution ensures we are well placed to provide this support as activity restrictions continue to ease. This was reflected in strong, above-system volume growth in core markets in 1Q22, continued sound portfolio credit quality and balance sheet strength.”

“In October, the Bank successfully completed a $6bn off-market share buy-back. Strong demand meant the offer was significantly oversubscribed, representing one of the largest ever tenders into a share buy-back in Australia. Through the buy- back and dividends, the Bank has returned over $12bn to shareholders in the past 12 months.

“In October, the Group released the thirteenth and final report from the Independent Reviewer on CBA’s Prudential Inquiry Remedial Action Plan, with all milestones assessed as complete and effective and all recommendations now closed. We will ensure that the changes we’ve made are sustained and continuously improved upon.”

But that wasn’t enough for investors who wondered about sliding margins on home lending, especially with more and more reports of banks and other lenders trying to get buyers interested with cash givebacks and other inducements, as well as real estate talk of discounting.



About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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