CBA clears bar but no sign of a medal

Ian Narev has pleaded CBA’s rates case, saying it is only looking after battling deposit takers and shareholders.

Mortgage choice

Commonwealth Bank of Australia (CBA) $77.40

Given this week’s exhaustive re-education effort from the bankers, Malcolm Turnbull’s inquisitorial panellists will have nothing to do but chat among themselves about their next Commonwealth Parliamentary Association jolly to study the capital adequacy requirements of Tahiti’s banking system.

On Monday, Bendigo and Adelaide bank chief Mike Hirst argued that because depositors had to be looked after, the bank was still suffering a margin hit even though it snaffled some of the official rate cut, rather than pass it on to borrowers.

ANZ supremo Shayne Elliott weighed in on Tuesday. Yesterday it was the turn of the head of the nation’s biggest home lender and deposit taker, who pleaded that it was only looking after battling deposit takers and shareholders.

“We get it that nearly two million of our home loan customers want to pay as little interest as they can,’’ CBA’s silky smooth Ian Narev said.

“But we also have 11 million depositors and 800,000 shareholders. Just like home loan customers these are Australians from all walks of life, this is not the elite of Australia.’’

Still the egalitarian CBA copped the usual greedy bank retorts after edging up full-year cash earnings to a record $9.45 billion.

In short, the bank has been able to do this because revenue growth and flat costs helped offset the effect of the net interest margin decline (down two basis points in the second half).

Home loan and deposit growth were highlights, up 9 per cent and 9.5 per cent, respectively. On deposits, Narev credits technology for a 22 per cent surge in transaction banking balances to $126bn. What a heartening reciprocal gesture from Narev’s battlers, who earn little or no interest on this dead money.

As for investors, they weren’t in the mood to send letters of thanks. To borrow Macquarie Equities’ five-ringed analogy, the bank “clears the bar, but doesn’t win a medal’’.

At least for the bank’s 800,000 holders, a steady dividend means they won’t have to resort to cans of Pal just yet. Long-term buy.

Mortgage Choice (MOC) $2.31, AFG (AFG) $1.14

According to the proletariat’s bank of choice, 46 per cent of its new home loans are now sourced through mortgage brokers, compared with 38 per cent less than three years ago.

The intermediaries also account for 54 per cent of the broader market.

For CBA, the broker penetration means its proprietary channels (notably branches) are becoming all the less efficient. “We said eight years ago the broker market would be a critical channel and we have seen it continue,’’ a philosophical Ian Narev says.

As well as expanding their market share, the brokers look to be benefiting from resilient demand, with June home loans bouncing 1.2 per cent to 57,609.

This has something — or everything — to do with the May rates cut and presumably will be emulated next month in response to the RBA’s latest largesse.

The listed brokers pay bank-like yields, but don’t need bank-like capital or incur bank-like bad debts and aren’t called greedy bastards. Granted, they’re not exactly rampant growth stocks either, but we would be happy to buy either for the divs.

Computershare (CPU) $9.74

As with the banks, Computershare chief Stuart Irving is countering the critics. In the case of the share registrar and diversified transaction processor, the perceived looming hazards are Brexit and blockchain. For the ASX, blockchain (distributed ledger) technology promises (or threatens) to eliminate settlements because trades will be finalised in real time.

For registrars such as Computershare, the flow-on effects are uncertain but Irving says: “Blockchain is not automatically bad for Computershare. It represents genuine opportunities for us across multiple markets.’’

As for the Brexit vote, it was a bloody nuisance with a capital B for a company that had just expanded its mortgage processing presence in the Old Dart. “It is only a vote at this stage and much has to be negotiated,’’ Irving says.

Hitherto unloved Computer-shares soared 8 per cent yesterday, not because of the B-reassurances but because management has called an end to the earnings slump. “Quite simply, compared to FY16 we expect FY17 earnings per share to be slightly up,’’ Irving says.

There’s also another cost drive, with an outside consultant brought in to sniff out savings that, while unquantified, are likely to be material.

As is the corporate wont these days, Computershare offered a smorgasbord of statutory and adjusted EBITDA, NPAT and EPS numbers. We’ll settle for “management EPS” declining 4 per cent to US57.2c a share in 2015-16.

The results reveal Computershare paid an effective tax rate of 28 per cent, so it either has to fire its tax advisers or be grateful it won’t be pursued by the fiscal fiend’s multinational profit-shifting unit. Hold.

The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author owns CBA shares.