Commonwealth Bank Reports 1H09 Results

Commonwealth Bank of Australia (CBA) released its 1H09 reports yesterday. The bank posted a 16 per cent drop in first-half profit as bad corporate debts linked to the global financial crisis hit the bottom line. Bad debts soared nearly five-fold to more $1.5-billion. As flagged in Commonwealth's surprise profit upgrade earlier this month, the bank's operating performance was sound, highlighted by a 20 per cent increase in banking income due to fee rises and volume and market share gains.

Net income climbed 9 percent to $2.57 billion in the six months to Dec. 31, the bank said today in a statement, buoyed by the acquisition of HBOS Plc’s BankWest unit. "Impairment expenses increased significantly, with much of this increase driven by exposure to a limited number of high-profile corporate customers whose business models have been under pressure for some time", the company said. The Commonwealth said that as of December 31, it had cash and liquid assets of $12.6 billion.

CBA secured a strategic stake in Australia's leading home loan mortgage broker, Aussie Home Loans; it was subsequently in a position to support Aussie's acquisition of Wizard, by acquiring a portfolio of around $2.5-billion of seasoned prime residential mortgages from GE. CBA has warned that the second half of the year will worse than the first and bad debts will continue to increase. The half-year cash profit of CBA was in line with a market update the bank issued last week, CBA shares initially fell 1.9 percent before recovering to trade 0.6 percent higher at A$29.79, even as the broader market . Analysts were reassured the core banking businesses were holding up, but were concerned about the bad debt levels at CommBank and other banks.

CBA kept its interim dividend at $1.13 a share, the first time in 16 years the payout wasn't raised, and warned over future dividends. That is likely to worry shareholders who buy the stock because of its income. "In the current uncertain economic environment we cannot guarantee to maintain future dividends at past levels", John Schubert, Chairman of Commonwealth Bank of Australia said.