‘Lofty’ expectations for CBA ahead of $4.3b profit

In recent years CBA has been the first major bank to run large-scale compensation schemes for financial planning, and to pay a record-breaking fine for a mass breach of anti-money laundering laws.

“They’ve gone early and they’ve gone hard in terms of remediation. Looking forward there will be less of those issues for the market to worry about,” Bell Potter analyst TS Lim said.

CBA did not post any increase in remediation costs in its September quarter, and last month chief executive Matt Comyn expressed hope the cycle of customer refunds affecting the whole industry had passed its peak.

CBA shares are up 13 per cent in the last year, which is behind the wider market but the clear leader of the big four. Over the same period Westpac shares are down 6.6 per cent, ANZ Bank shares have fallen 3.2 per cent, and National Australia Bank’s stock price is up 4.7 per cent.

Despite recent strength in CBA’s share price, however, the banking giant is also delivering its half-year profit against a weak operating environment including slow credit growth, stiff competition, and high insurance claims from the summer’s catastrophic bushfires.

Evans and Partners analyst Matthew Wilson said expectations for CBA were “lofty,”  and an off-market share buyback was likely. But he said CBA should instead keep its “powder dry,” predicting the bank’s profit margins would be crunched, bad debts would creep up, and fee income would fall.

Mr Wilson, who has a “negative” recommendation on the stock, said investors seemed “anchored” to a time when CBA commanded a large premium to peers, but it now faced growing competitive pressure and moves from government to target fairer customer outcomes.


UBS analyst Jonathan Mott, who has a “sell” on CBA, last week told clients CBA had the highest price to earnings ratio in the world for developed country bank with a market capitalisation above $US100 billion. Mr Mott said he thought the bank would embark on a share buyback in one year, once it had received all of the proceeds for its life insurance arm.

Morgans analyst Azib Khan tipped a $2.5 billion off-market share buyback from CBA, pointing out that in the last six months the New Zealand regulator had provided a final decision on its new capital requirements.

Managing director of White Funds Management, Angus Gluskie, said some in the market were becoming more confident towards the stock, suggesting the bank may be able to focus more on its core business.

“I think that getting into that clear air, and looking to where there business is going forward… investors might be more confident towards the stock,” he said.

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