The Commonwealth Bank (CBA) faces a moment of truth at its annual meeting today where its pay policies are expected to come under sustained assault from shareholders large and small.
The country’s biggest bank didn’t get any help in its defence of those policies in its first quarter trading update yesterday – no growth in profit over the past year, a sign that will raise more questions about the sustainability of the bank’s current high level of profits and dividend.
The $2.4 billion unaudited net profit was hardly inspiring and exposed the weak nature of Monday’s bounce off the back of the 2015-16 results from Westpac and its lowered profit target.
Investors were more heartened by the fact that Westpac (WBC) left its dividend unchanged. CBA’s quarterly update saw the shares drop 0.6% to $72.07. Westpac lost 0.8%. Shares in the NAB and ANZ were flat at the end, but Macquarie Group (MQG) shares lost 2.5%.
Investors of all sizes have expressed concerns with the remuneration at the CBA and the AGM in Perth – where media question in particular won’t be as vigorous had the meeting been held in Sydney and Melbourne. Big investors determined to call the bank to account on the question of pay will travel to Perth for the meeting.
As well many activist small shareholders and customers who have complaints against the bank will have found it hard and more expensive to go to Perth than if the meeting was on the East Coast.
The CBA blamed the flat result on higher funding costs and falling interest rates which squeezed profit margins. The CBA said growth in its income had slowed “slightly” compared with the previous financial year (no figure was given), because of those falling interest rates, the higher currency and higher insurance claims.
The country’s biggest lender also said profit margins had narrowed in the quarter – mirroring trends from Westpac, NAB and the ANZ
CBA told the sharemarket there had been a narrowing in its net interest margin – the bank’s most important profit margin – the cost of funding from deposits compared with what it charges for loans.
“Group net interest margin was lower in the quarter due to higher funding costs," it said.
CBA said its expenses had grown by less than revenue, which invested liked to read. It said it had also maintained its market share in key markets, including home loans, household deposits, and business lending.
"In Wealth Management, Average Assets Under Management (AUM) and Funds Under Administration (FUA) rose by 3 per cent and 2 per cent respectively, driven by stronger investment markets and positive net flows. ASB customer advances continued to grow above market in the quarter,” the bank said yesterday.
Charges for bad and doubtful debts remained relatively low, despite more bad loans in mining states of Queensland and Western Australia and the still struggling New Zealand dairy sector through ASB in NZ).
CBA said impaired loan costs were $322 million in the quarter, which is 0.18% of total loans, down from 0.19% in the year to June 30. But it noted that impaired loans in its core consumer lending business were higher in mining-exposed areas.
