CBA shares plunge to pandemic lows after Q3 earnings miss estimates
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More news: Shares in Commonwealth Bank suffered the biggest fall since March 2020 after the bank recorded a $316 million loan impairment charge in response to elevated macroeconomic uncertainty and a lower quarterly net profit.
Shares tumbled 9.73% to $154.87 at 12:57pm AEST.
UBS analyst John Storey maintains a ‘sell’ rating on the company with a price target of $130, noting that the third-quarter trading update fell below market census. He added that markets are becoming more wary as CBA has significant exposure to investor mortgages following the changes to negative gearing announced on Tuesday.
CBA books $316m provision hit citing economic uncertainty
The news: The Commonwealth Bank has followed peers and recorded a $316 million loan impairment charge as it raises provisions in response to “heightened geopolitical and macroeconomic uncertainty”.
The numbers: In a March trading update, the bank posted an unaudited cash net profit of $2.7 billion, down 1% on its first half average but up 4% on same quarter last year.
CBA grew business lending by 12.5% as it added $21.6 billion in loans, or 1.2x more than system. It grew household deposits by 9.1%, adding $38.3 billion in household deposits (1.1x system), and grew home lending by 7.1% (in line with system) to increase its mortgage book by $41.2 billion.
Operating income remained flat with the bank saying loan growth had been offset by two fewer trading days. Operating expenses were up 1% excluding restructuring and notable items, on the back of tech spending, including higher cloud computing volumes and AI investment.
Operating performance was up 1.7% on the first half average, and up 5.6% on the March quarter last year. The bank didn’t quantify margins for the quarter but said its net interest margin (NIM) was “broadly flat”.
CBA added $200 million in forward looking provisions as it revised its macroeconomic forecasts, increasingly weighted towards its downside scenario. It recorded a loan impairment expense of $316 million, almost double what it was last quarter.
Arrears across its home loan and credit card book increased slightly while personal loan arrears jumped 30 basis points reflecting seasonality and “deliberate portfolio settings”.
Troublesome and non-performing corporate exposures (TNPE) rose from $6.1 billion to $6.5 billion reflecting “movements in single name exposures across a range of sectors”.
Its capital equity tier 1 ratio fell from 12.3% in December to 11.6% in March, owing largely to the payment of the first half dividend.
What they said: Chief executive Matt Comyn said the bank remained well positioned to navigate economic and geopolitical uncertainty.
“We are closely monitoring the impacts of the Middle East conflict and the broader macroeconomic environment. The Australian economy continues to demonstrate resilience, but supply chain disruptions, higher prices and interest rates are expected to weigh on household spending and business activity,” Comyn said.
He noted deposit funding represented 79% of CBA’s funding base and had raised a further $32 billion in wholesale funding to date.
“We will continue to adjust our settings as appropriate and remain focused on executing our strategy to build a brighter future for all.”
The sources: ASX, UBS analyst note
