Commonwealth Bank of Australia
.JPG)
CBA Details
Recent introduction of levy charges to impact earnings: Recently announced Federal Government’s bank levy is expected to impact the group approximately $315 million per annum, $220 million after tax. The estimations are based on the group’s current financial position at Q3FY17 and subject to any further amendments made through the parliamentary process. The budget announcement also included several other measures which potentially intrude into the operations of the banks and have significant implications for good corporate governance. However, the liability base on which the levy is calculated will exclude approximately $240 billion of deposits which are covered by the Financial Claims Scheme, as at 31 March 2017. Commonwealth Bank has consistently returned 75% of profits as dividends on average each year, and millions of Australians have also benefitted through their superannuation funds.
Apprehensions over margins: During Q3FY17, the group’s Net Interest Margin fell on account of the better average liquids and competition effects. The group reported a cash earnings of over $2.4 billion in the quarter while the unaudited statutory net profit reached over $2.6 billion. Deposit funding and liquidity coverage ratio (LCR) stood at 67%, 124% respectively, while Common Equity Tier 1 (CET1) capital ratio improved by 37 basis points to 9.6% on an APRA basis. On the other hand, CBA’s insurance income was impacted by adverse weather conditions. In last five days, the stock fell over 2.7% (as at May 11, 2017) but still trades at higher levels. We maintain an “Expensive” recommendation at the current price of $ 82.30
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CBA Daily chart; (source: Thomson Reuters)
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