CBA steamrolls its way to another record with more to come

CBA has beaten even the most optimistic earnings expectations, justifying the recent rally in its shares

Bankers usually eschew exuberance, even when everything appears to be going right, and the Commonwealth Bank’s Ian Narev lived up to that dour stereotype this morning.

After stunning investors and analysts with yet another record result, he predicted “only limited short term upside for the Australian economy”.  Investors no doubt hope he’s right.

Not only was this year’s record $7.677 billion statutory profit 8% higher than last year’s, the preferred measure, the cash profit, jumped 10% to a stonking $7.819 billion, much better than anyone anticipated.

Delivering lifts on last year’s earnings these days is passé. In a world where everything is gathering speed, the imperative is to beat expectations and Narev duly delivered.

During one of the most subdued periods of demand for credit, CBA has lifted its performance in almost every division; retail banking, institutional banking and markets, wealth management, New Zealand and BankWest.

One of the few areas that declined was business and private banking which dropped 2% as net interest margins were squeezed.

Retail banking was the standout, contributing more than $3 billion to earnings, a 13% lift on last year’s performance.

But the big news for shareholders was the dividend.  It was lifted 9% with a final dividend of $2 taking the full year reward to $3.64 a share.

On an otherwise stunning set of numbers, that may be the one area to provide some disappointment. The bank has paid out 74.9% of its earnings as dividends, smack bang in the middle of its 70 to 80% target, dashing hopes from some that the ratio would be lifted to 77%.

No-one could be disappointed with the internal workings of the juggernaut that now has become the nation’s biggest company. It has grabbed market share from its rivals, contributing to a 7% lift in revenue.

After years of moaning about competition squeezing margins, and using it as an excuse to not pass on Reserve Bank rate cuts, CBA this morning revealed its margins had expanded 4 basis points to 2.13%, again much better than forecasts (as I had predicted in Five reasons to hang onto the banks back in May).

Customer deposits – at $443 billion –now fund 63% of the bank’s requirements, putting it on a much stronger footing compared with the period leading up to the global financial crisis when all Australian banks relied overwhelmingly on offshore credit markets.

The bank is continuing to drive efficiency through the implementation of new technology both at operations and the customer level with online banking and mobile technologies.

CBA shareholders have reaped the rewards in the past year with total shareholder returns – share price rises and dividends – of 37%.

The stock opened higher again this morning hitting yet another record. Perhaps Narev could afford a brief smile.

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