Commonwealth Bank has produced a set of profit numbers that would be the envy of retail banks around the world. But it wasn't enough. Despite a 10 per cent boost in cash earnings, the bank's shares tumbled because punters had been hoping for a special dividend that didn't eventuate.
The suggestion that anyone should be disappointed on the dividend front clearly hit a raw nerve with chief executive Ian Narev. He was less than impressed with shareholders who bought the stock hoping for an early Christmas present in the form of bigger lashings of dividends. It put him in a difficult position. He would have been aware of the market rumours but couldn't do anything about them. This type of result would normally be celebrated by the 800,000 shareholders, who on average hold about $67,000 worth of CBA shares.
They have presumably become used to watching their stock (and wealth) increase in value. Since September the bank's shares have risen more than 36 per cent, thanks in part to demand from yield-hungry investors.
But Narev provided Australia's management and professional investors with a lesson in the value of long-term strategy over short-term cost-driven decisions too often made by business and investors.
Commonwealth Bank is at the tail end of one of the biggest and most expensive IT overhauls in Australian corporate history. It has put the bank ahead of competitors and should provide some fortification against non-bank, technology-based start-ups that have started vying for a piece of the traditional banking market.
For years CBA strategy has been questioned by some investors who considered completely reinventing the core banking systems as risky overcapitalisation.
The fruits from this investment were on clear display on Wednesday. The most impressive aspect is that the productivity gains were made without big staff culls or significant offshoring. The cash earnings improvement of 10 per cent, described by one analyst as "a perfect 10", was better than the consensus had predicted.
Not everyone will be happy. Record earnings are generally followed by howls of protest from borrowers who did not always receive last year's full RBA interest rate cuts. That's understandable. Of the CBA's constituents (including borrowers) the shareholders drew the longest straw.
The Labor government has already devised a way to grab a share of the banking industry's healthy profits by imposing a deposit levy should it be returned to power in September - an issue on which Narev would not be baited into comment.
Instead the focus was all about the bank's ability to squeeze a 13 per cent improvement from its Australian retail operations in what is a sluggish credit market and a very competitive sector for deposits.
Top-line income grew by 8 per cent and costs grew by 3 per cent across the organisation.
CBA didn't manage to make any significant inroads in market share in most categories. In local home lending it inched up from 25.1 per cent to 25.3 per cent, and in retail deposits grew 0.1 of a per cent, while in the business lending market it lost 20 basis points of market share.
Narev, while setting up his bank as the one for the competition to beat, has demonstrated there are still good returns to be had in the banking industry.
But CBA is nudging ahead in customer satisfaction scores and is now ahead of the pack on the all-important measure of products per customer. The profit improvement this generates allows CBA to continue to invest despite the fact it is facing cost headwinds in 2014.
It puts CBA in a strong position in the event the economic environment deteriorates, a possibility that the bank does not discount.
If economic conditions remain the same this year, Narev believes profit will improve, but says it will be tough to match the same percentage gain.