Commonwealth Bank beats estimates with bumper $9.88bn profit

CBA has noted market appetite for CommInsure after booking a record $9.88bn profit, as an early market bounce waned.

People walk by a Commonwealth Bank branch in Brisbane. (AAP Image/Dan Peled)

Commonwealth Bank of Australia shares have lifted in early trade after it posted a 4.6 per cent lift in full-year cash profit to $9.88 billion, as the bank finds itself embroiled in a deepening money laundering scandal.

CBA (CBA) unveiled the modest rise in cash profit for the year through to end-June, which was slightly above analyst expectations of $9.80bn.

The bank also confirmed this morning it is in discussions to offload its life insurance businesses, CommInsure and Sovereign. “We are in discussions with third parties in relation to their potential interest in our life insurance businesses in Australia and New Zealand. The outcome of those discussions is uncertain”.

“While the discussions may lead to the divestment of those businesses, we will also consider a full range of alternatives, including retaining the businesses, reinsurance arrangements or other strategic options,” CBA said.

The bank’s chief executive, Ian Narev, noted that it has become “apparent there’s some appetite in the insurance world to have a discussion with us and people who are interested in the (life insurance) business,” in an afternoon media conference dominated by questions related to the Austrac allegations.

The bumper profit result comes just days after the Australian Transaction Reports and Analysis Centre lodged legal proceedings alleging CBA engaged in more than 53,000 breaches of anti-money laundering and terror financing laws.

At the heart of the claims is the alleged misuse of the bank’s intelligent deposit machines, which can take deposits of up to $20,000 at a time.

CBA said today it had set up a dedicated subcommittee to oversee the bank’s response to the alleged breaches of money-laundering laws and that its action reflected the view that the board, CEO and directors “take ultimate collective responsibility for the reputation of the bank”.

“The board notes that it has no reason to believe that the allegations arose from deliberate or unethical behaviour, or any commercial motive.”

The extent of the claims against the bank — which it has defended as a technology issue — has

already led to a rebuke from the Treasurer and chairman Catherine Livingstone to strip CBA’s top executives of their short term bonuses.

The result also comes at a time when banks are deeply out of favour in Canberra, with the sector being hit with a $6.2 billion big bank levy from the May budget.

While investors closely track the cash profit figure, the bank’s net profit — which includes accounting adjustments — came in at $9.93bn, up 7.6 per cent.

“Commonwealth Bank’s performance this year has again contributed to the financial wellbeing of our customers, shareholders, our people and the Australian economy. This is the result of our consistent focus on customer satisfaction, innovation and financial strength,” chief executive officer Ian Narev said.

The bank also confirmed it will acquire the remaining 20 per cent interest in Aussie Home Loans (AHL) it does not already own from Aussie founder John Symond. “We will consolidate AHL from completion of the acquisition which is currently expected to be in late August 2017.”

The solid rise in profit was helped by a 1 per cent increase in revenue, which came in at $44.95bn, while return on equity shrank 50 basis points to 16 per cent.

The results revealed CBA continues to face stiff pressures to its margin, with its net interest margin — the key measure of profitability — falling 3 basis points to 2.11 per cent over the year.

Operating expenses rose 6 per cent while impairment charges fell 13 per cent, which the bank said was mainly due to “lower provisioning in institutional banking and markets and business and private banking, partly offset by Bankwest.” Bad and doubtful debts are now at their lowest level since the first half of 2015.

CBA delivered a higher-than-expected final dividend of $2.30 per share, bringing the year’s total payout to $4.29 a share. Analysts had expected a final dividend of $2.25.

CBA, which rules off its balance sheet at the end of the June, is the first of the major banks to hand down its full-year results. As the nation’s biggest lender the bank often delivers an insight into the health of the broader economy.

Mr Narev said while the economy remains sound overall, households are concerned about job security, wages and the cost of living. “Global caution remains high due to geopolitical change and less expansionist monetary policy. So all of us need to focus on working together to create an environment where businesses continue to invest to create rewarding jobs,” he said.

Banking income grew 4.3 per cent in the year due to volume growth in home lending, business lending and deposits, the bank said. Home loans rose 7 per cent to $486bn.

The bulk of the bank’s earnings continues to be driven by its retail banking business which increased profit 9 per cent in the year.

Customer deposits grew 8 per cent, adding an extra $43bn to its $561bn pool of deposits and representing 67 per cent of its total funding, the bank said.

At 3.15pm (AEST), CBA shares were up 0.19 per cent to $80.80.