The Commonwealth Bank set the banking sector running yesterday with a third quarter trading update that was much more bullish than many analysts have been expecting.
With most of the major banks about to report their 2007 interim profits over the next month, the one with the June 30 balance date, the Commonwealth, prompted investors to pile into bank shares that have already enjoyed a strong run ahead of the reporting season which starts next Tuesday with the ANZ.
The CBA said in a third quarter update yesterday that it remains on track to deliver cash earnings per share (EPS) growth that meets or exceeds the average of its peers.
For brokers like Goldman Sachs JB Were the CBA statement won’t be greeted warmly as they have been advising clients to switch from the CBA to Westpac for most of the last four months or so.
All five majors closed at new all time highs yesterday after the CBA’s statement, with early strength, a rest and then some afternoon buying.
The CBA closed at $53.30, up 65c after peaking at $53.73; the NAB ended at $44.02, up 84c and peaked at $4.30. The ANZ finished at $31.27, up 24c and a peak of $31.50; Westpac finished at $27.49, up 46c after a high of $27.60. And St George ended at $36.30, up 40c on the day and after a peak of $36.55.
The CBA’s statement released before trading opened yesterday started :
“With trading conditions and underlying credit growth remaining favourable, the earnings momentum of the first half has been maintained in the third quarter of the Group’s 2007 financial year.
“As a result the Group remains on track to deliver cash earnings per share (eps) growth which meets or exceeds the average of its peers.
“Highlights of the quarter include:
· Earnings momentum maintained;
· All businesses performing well in a competitive environment;
· Credit quality remains sound; and
· On track to deliver strong eps growth.”
It went on to detail the performance of the key divisions and revealed that on the sensitive question of bad debts and loan arrears,things were not going to be as bad as some analysts had expected.
“Consumer credit quality has remained sound. In home lending, there has been some seasonal increase in arrears.
“Loss rates in unsecured lending (which includes credit cards) are trending slightly below expectations.
“For the full year, the Loan Impairment Expense on the consumer credit book, as a proportion of Risk Weighed Assets, should be no more than the levels reported for the first half of the year.”
CEO Ralph Norris was bullish in his comment in the statement: “It is pleasing to see that our focus on profitable growth is continuing to deliver results.
“Not only have we maintained the earnings momentum from the first half, but we are continuing to make good progress with our key strategic initiatives.
“With good underlying credit growth and sound credit quality, I remain positive about the outlook and am confident in the ability of the Group to again deliver strong earnings per share growth for the full year.”
He and the bank did not issue any figures in the guidance: it was all nuance.
“In Australia, the retail bank continued to target profitable growth in each of its key products,” it said.
Home lending balance growth has been in line with market.
In credit cards, recent growth rates had also been in line with market even though the bank continued to avoid zero rate balance transfer offers.
“Retail deposit growth, which has been influenced by normal seasonal factors, has been in line with system with continuing strong inflows into Netbank Saver,” it added.
Funds under management rose 10 per cent to $130.8 billion in the nine months ended March 31 and two per cent in the quarter.
The bank’s profit rose 10 per cent to a record $2.19 billion in the first six months of the 2007 year ending December 31.
Brokers had put the company’s full year earnings around the $4.35 to $4.5 billion mark, so there now may be some upgrades as models are re-worked.
