Commonwealth Bank shares inched up in yesterday’s weaker market yesterday after the bank issued a cunningly structured first-quarter trading update.
While the ASX 200 was down just under 20 points or nearly 0.2%, CBA shares rose 0.7% to $80.60 after the bank said first-quarter profit rose 5% to $2.27 billion.
But that wasn’t the case – it was a 5% rise from the average of the two previous quarters (ie the final two quarters of 2018-19, but the result was down 9.6% from the $2.5 billion of the same quarter September quarter a year ago, which is the more accurate comparison.
Investors ignored the warning that profit margins would continue to come under pressure from very low-interest rates, as they mostly do these days, except when there is dramatically bad news such as the ANZ cutting the franking on its steady final dividend to 70%.
A key driver of the stronger result was the fact CBA did not take any new charges for customer remediation in the quarter (unlike the recent final reports from the ANZ, Westpac and NAB all revealed rises in these costs in the September half year).
The CBA said it continued to look through past advice for potential problems. It also said charges for soured loans had remained flat, as consumers used the government’s tax refunds to pay off home loan and credit card debt.
CBA flagged further “headwinds” for its net interest margin (NIM), which compares funding costs with what the bank charges for loans.
Mortgage lending rose 3.5% over the quarter on an annualised basis, while household deposits grew 10.4%.
Including the $1.5 billion gain from August’s sale of Colonial First State Global Asset Management to Mitsubishi, unaudited statutory profit for the period rose 55% on last year’s $2.45 billion to $3.8 billion.
“The Bank remains well placed in a challenging operating environment, characterised by global macroeconomic uncertainty and historically low-interest rates,” chief executive Matt Comyn said.
Troublesome and impaired assets edged slightly higher, with pockets of stress “similar” to those noted at the full-year results in August, when the bank flagged weakness in sectors linked to consumer spending, agriculture and construction, plus home loan impairments in Western Australia and Queensland.
Commonwealth Bank has set aside $2.2 billion for remediation and related work, $1.2 billion of which is for customer refunds.
The bank on Tuesday said remediation work for aligned advisers between2008-09 and 2017-18 is still ongoing, with a $534 million provision already recognised in the 2018-19 full-year results.
