Commonwealth Bank of Australia shares advanced after delivering a record profit together with a buyback and an increased dividend, offsetting caution from Chief Executive Officer Matt Comyn on the fragile economic outlook.
(Bloomberg) — Commonwealth Bank of Australia shares advanced after delivering a record profit together with a buyback and an increased dividend, offsetting caution from Chief Executive Officer Matt Comyn on the fragile economic outlook.
Cash profit climbed to A$10.2 billion ($6.7 billion) and the country’s biggest lender said it will begin a A$1 billion stock buyback, while paying a final dividend of A$2.40 per share. Meantime, Comyn handed investors a dose of caution by setting aside more cash for troubles brewing in the economy.
Commonwealth Bank shares rose 2% as of 10:19 a.m. in Sydney, compared with a 0.1% increase on the S&P/ASX 200 Index.
The nation’s lenders were buoyed by higher borrowing costs over the past year that so far have been accompanied by few economic shocks and an ultra-low unemployment rate. Still, it’s been a period of intense competition for home loans and investors are weighing whether the good times will give way to further margin pressure and more signs of stress on families and businesses.
“The Australian economy has been resilient with the tailwinds of a recovery in population growth, relatively high commodity prices and low unemployment,” Comyn said in a statement. “However there are signs of downside risks building as rising interest rates have a lagged impact on mortgage customers and other cost of living pressures become a financial strain for more Australians.”
The increase in cash profit to A$10.2 billion for the year to June 30 compared with the A$10.1 billion average estimate of eight analysts surveyed by Bloomberg.
The bank said it’s continuing to manage headwinds after a peak in net interest margins in late 2022. The key gauge of profitability dipped by five basis points from the first half of the year to 2.07%.
Read More: CBA Up Most Since October on Profit Growth, Buyback: Street Wrap
“We are seeing consumer demand moderate and economic growth slow and we are closely monitoring the impact of reduced discretionary spend, particularly on our small and medium sized business customers,” Comyn said.
Fixed Loans Ending
The firm expects competition, customer deposit switching and higher wholesale funding costs to remain headwinds to margins. The lender cited the ongoing cost of living pressures for higher loan impairment expenses. This will be partly offset by the benefit of higher interest rates, the statement said.
Read More: CBA’s Stingy Payout Points to Weaker 2024 Credit Outlook: React
Consumer arrears increased in recent months, but remain historically low, reflecting low unemployment and high levels of consumer savings and repayment buffers, according to the bank.
Goldman Sachs Group Inc. analyst Andrew Lyons, who has a sell recommendation on the shares, said the firm’s capital position topped its expectations.
What Bloomberg Intelligence Says
“CBA’s stingy dividend payout of 74% and relatively small A$1 billion buyback, despite A$5.6 billion of surplus capital, suggests it’s keeping powder dry for a worsening credit outlook, reflected in a big impairment uptick” — Bloomberg Intelligence senior industry analyst Matt Ingram.
–With assistance from Georgina McKay and Karen Leigh.
(Adds share price reaction from first paragraph, analyst comments from tenth paragraph)
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