Strangely, after an early flurry, the bullish first quarter update from the Commonwealth Bank failed to keep investors very interested in the sector yesterday as the day’s trading went on.
News of a cash net profit of around $1.4 billion (no comparative figures were given) boosted the shares of all major banks, but by the afternoon only the NAB had maintained the early momentum, along with the CBA.
CBA shares ended up more than 4% at $55.08, a rise of $2.37. They hit a day’s high of $55.21.
The NAB ended up 2.3%, or 85 cents at $29.60, after reaching a high of $29.74.
The ANZ closed up 26 cents at $22.66 after topping $23 during the trading (peaking at $23.10).
The odd bank out was Westpac, which jumped 43 cents in early trading to $26.98, before falling during the afternoon to finish in the red with a 27 cent loss at $26.28.
But that belied the better underlying performance. Westpac went ex its final dividend yesterday and should have really been down 60 cents.
It will recover from today.
Overall though the major banks did better than the market as a whole which rose by just under 2% yesterday, with the bid for AXA Asia Pacific ending up as the major driver, along with the CBA’s solid update.
The NAB, ANZ and Westpac have all just reported second half and full year profits for 2009 where the trend the CBA reported yesterday, was quite clear.
Rising home lending, fatter interest margins, strong balance sheets, revenue rising much faster than costs and a belief that the poor trend in bad debts was ending, and would soon start easing.
The CBA is a June 30 balancing bank, so there’s a bit of catch up as it is clear the September quarter was a very solid one for the banks and a lot of companies.
The CBA said in its market update that home-loan growth and stronger equity markets drove earnings.
The result is almost equal to one third of the full-year cash profit of $4.415 billion reported in August.
Chief executive Ralph Norris didn’t give full year guidance but said that despite the strong performance, the operating environment remained challenging with average funding costs rising and credit growth slowing.
"Whilst the economic outlook has improved since our results in August, the pace and extent of the recovery remains unclear," Mr Norris said.
"We will therefore continue to retain our conservative business settings until such time as a sustained improvement is evident."
Wealth management was the standout performer in the quarter with fund flows rising 8.3% and equity markets staging a strong recovery, something Mr Norris warned may not be repeated.
(This market pick up is partly behind the action among fund managers with the surprise move on AXA by AMP revealed yesterday.)
The CBA said bad-debt charges were about $700 million with credit quality trends generally moving in line with expectations.
Total impaired assets increased slightly to 0.88% (88 basis points) of gross loans.
"Consumer arrears remained broadly stable, with improvements in the credit cards and Bankwest home loan portfolios offset by a slight increase in CBA home loans, driven, in part, by customer take-up of repayment holidays offered under the group’s customer assist program," the bank said in its statement.
CBA said competition remains strong, particularly in deposits where margins are under pressure, although its group net interest margin improved slightly.
The bank’s Tier 1 capital ratio strengthened to 8.70% while liquid asset balances were maintained at approximately $87 billion.
The bank said that its main profit centre, the retail bank "performed strongly, highlighted by above-system home loan growth and further gains in customer satisfaction levels.
"In the deposit market, focus remains on profitable growth, with new personal transaction account numbers continuing to grow strongly.
"Bankwest income remains strong, supported by continuing good growth in customer numbers and product balances."
The sluggish New Zealand branch saw some improvement as well.
"The New Zealand economy showed some signs of improvement, but operating conditions remain challenging.
"ASB performed relatively well, with good volume growth in home lending and deposits.
"Price competition for retail deposits had a negative impact on margins."
