Amid yesterday's carnage on the market, especially in banking stocks, the Commonwealth Bank produced a result that would normally have prompted a bit of a rally in the sector.
But yesterday wasn't a normal day on the market: it was a 3% savaging as share prices fell for the entire day.
And banking stocks were among the major victims, the falls much larger yesterday than Tuesday when Rams announced that its cost of funding would rise, hurting earnings; news that spooked the herd.
More bad news in overseas markets set up yesterday for a fall, but probably not as big as we saw.
But compared to overall fall, the banks, while lower, were not off the 3% in value the wider market was.
Perhaps that was the influence of the CBA's solid result and reassuring comments.
The bank said its cash net profit after tax rose 18% for the year to June 30, 2007 to a record $4,604 million. (The 2006 result included a one off gain of $145 million on an asset sale.)
(Cash profit is the banking industry's preferred way of reporting and comparing profits).
The country's Number 2 bank said its reported net profit was $4.470 billion in the June year, up 14% on the previous year, while cash net profit rose 17.8% to $4.604 billion, up 17.8 per cent.
That result was broadly in line with a consensus of forecasts of $4.547 billion.
Normally with that sort of result, and even after the repeating of its now standard ill-defined guidance of 'matching or bettering its peers in 2008' the bank's shares would have normally gone for a bit of a gallop.
"Taking all these factors into consideration, the Group expects to again deliver, for the 2008 financial year, EPS growth which meets or exceeds the average of its peers through a continued focus on delivering exceptional customer service and profitable growth," the bank said about the outlook for the new financial year.
Net profit was better than most analysts had been forecasting for most of the year and it only has been in the past three months that their estimates have risen on the back of detailed presentations (and reported into the market) on how the bank saw its various bits travelling and what their ambitions were for 2008.
The Commonwealth will pay a second-half dividend of $1.49 cents a share, compared to $1.30 a year earlier. That's a bit below the $1.52 a share most had thought possible.
The bank's net interest margin, which measures the profitability of lending, fell to 2.19% from 2.34% a year earlier. Its cost-to-income ratio in banking operations fell to 45.8% from 47.7% in 2006 as revenue growth exceeded costs. (That's a trick the ANZ mastered years ago.)
The bank said the result was underpinned by "strong performance from all of the Group's businesses with Banking, Funds Management and Insurance all delivering double digit growth in Underlying NPAT.
As well as continuing to deliver strong earnings growth, the Group again improved its return on equity – up 0.8% to 22.1%.
"The domestic economy maintained a good level of growth during 2007 financial year. While there is some risk from recent instability in global financial markets, the outlook for the Australian economy remains positive for the 2008 financial year.
"As far as credit growth is concerned, housing credit is expected to grow at a similar rate to that experienced in the 2007 financial year while business and other consumer credit growth is likely to ease slightly from current levels.
"The current high level of competitive intensity is not anticipated to decline in the coming year. Despite this, all of the Group's businesses are performing well and the investments we are making coupled with quality execution will ensure that we remain competitive," the bank said in its explanatory statement.
The Commonwealth said assets under management rose 17% from a year earlier, helping boost earnings from funds by 23% to $492 million. The bank's Colonial First State unit is the biggest funds manager in the country.
The result was solid with the lower cost to income ratio a sign that the bank has driven revenue, lifted customer confidence and staff productivity, without resorting to the sort of job threatening behavior of the previous management.
But all the positives were ignored for the negatives of the fear gripping financial markets.
The CBA lost another $1 to close at $53.00, while its low for the day was $52.84. A 3% fall would have been more than $1.60, so there was an element of 'flight to safety' here.
The same could be said about the other banks: Westpac fell 71c to close on its day's low of $25.14.
The ANZ ended 60c down at $27.60, after touching a low of $27.51. The NAB fell 64c to $38.36 after touching a low of $38.32. The NAB bounced a touch in the mid afternoon before easing in late trading.
St George took a hit, down 3% or $1.08 at $32.80, its low for the day. St George is thought to rely more on commercial paper and securitising than its larger competitors and the market feels it might be more exposed.
But Macquarie Bank fell 5% or $3.55 to $66.68, after touching a low of $65.80. The close yesterday was the lowest MBL shares have been for around 10 months or more. It was $97 a few months ago.
Rival Babcock and Brown had a similar experience, falling $1.90 to $21.00. That was a fall of 8.2% and it also closed at the lowest point since last September-October. It was $34 at one stage in the past year.
