http://www.smh.com.au/business/cba-surprises-with-profit-upgrade-20100115-mc1t.html
CBA surprises with profit upgrade
January 15, 2010 - 4:10PM
Commonwealth Bank is going from strength to strength in the wake of the global financial crisis and expects a massive 44 per cent rise in first-half cash profit, boosted by fewer bad debts, improved equities markets and volume growth.
The country's largest lender expects cash profit for the six months ending December 31 to be $2.9 billion, compared with the prior years cash figure of $2 billion and the consensus analyst forecast of $2.7 billion.
This result reflects a continuation of the momentum reported on November 9, the bank said in a statement minutes before the close of the sharemarket.
CBA shares jumped 3 per cent on the news to settle at $58.10. For the day, the stock gained $1.31, or 2.3 per cent, after being down about 40 cents for most of the session.
The announcement boosted other banks too, with Westpac gaining 0.5 per cent after losing as much as 1.6 per cent, NAB adding 0.9 per cent and ANZ up 0.1 per cent.
The factors leading to the upgrade seem common to the major trading banks, said Hugh Dive at Investors Mutual. I would expect the other banks to run based on this in Mondays session.
Key drivers
Key drivers of the result were the solid income growth across the business, good volume growth, disciplined cost management and a decline in impairment expenses, the bank said.
Also helping the result was a positive return of $240 million after tax as equity markets recovered over the six month period.
The profit forecast shows that CBA has rebounded from the slowdown associated with the global financial crisis, and is driving earnings higher with its biggest market share in home loan lending and deposits.
EL&C Baillieu analyst Stewart Oldfield said CBA is just getting stronger.
They have got the premier retail franchise in the country and its a case of the strong getting stronger, Mr Oldfield said. In an environment post the GFC the strongest have just gotten stronger.
Australias economy skirted the global recession, with the nations four biggest lenders expanding their share of the local loan market. Bank lending rose in November, adding to signs of an economic rebound that prompted Reserve Bank Governor Glenn Stevens to raise interest rates three times since October.
Bad debts peak
CBA had said in November that cash earnings for the three months to September jumped 27 per cent to $1.4 billion. At that stage, the impairment charge was $700 million for the three months, little changed from the previous quarter.
Chief executive Ralph Norris said at the time that the bad debt cycle had probably peaked, but that the pace of recovery was unclear. Westpac and ANZ also said last year that the bad debt cycle had probably peaked, while NAB was more cautious insisting it was too early to say.
Cash earnings, widely used by analysts as an indicator of core profit, exclude one-off items and non-cash accounting items and form the basis for dividends.
CBA will report its earnings on February 10.
BusinessDay, with wires
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