Commonwealth Bank shares sink despite revealing record profit

The Commonwealth Bank’s half-year profit was more than $5bn, but its shares sank $10.5bn amid rising fears for banks.

Commonwealth Bank shares fell heavily on Wednesday, leading the stock market lower despite the company unveiling a massive half-year profit.

Australia’s biggest bank plunged 5.7 per cent – losing $10.5 billion in market value – after it warned of tougher credit conditions as it unveiled a record $5.1 billion cash profit and raised its interim dividend by 35c to $2.10 per share.

IG analyst Tony Sycamore said CBA’s share price slump was the “epicentre” of Wednesday’s overall stock exchange weakness, and its latest sell-off began last week when the Reserve Bank lifted its official cash rate and warned of more rises ahead.

CBA shares had surged 10 per cent during January, and its fall on Wednesday accounted for almost half of the market’s overall 0.9 per cent fall.

“It’s run very, very hard and at the end of the day we were probably due to take a breather,” Mr Sycamore said.

Investors withdrew money from CBA on Wednesday. Picture: NCA NewsWire/David Crosling

“CBA warned of a credit slowdown, and there also was very hawkish rhetoric from the US Federal Reserve – US CPI numbers overnight probably weren’t quite cool enough for people to breathe a sigh of relief,” he said.

Bell Direct market analyst Grady Wulff said the US inflation data spooked global investors, who feared that rate rises were not close to pausing or slowing down amid high inflation.

Separate comments from Australia’s Reserve Bank on Wednesday also put pressure on CBA and other bank stocks, Ms Wulff said.

“We have had comments from RBA Governor Philip Lowe today about his understanding of the tough times faced by many Aussies in this high inflation, rising interest rate environment, but he also said that further rate hikes are still required to bring the stubbornly high inflation back to the target 2-3 per cent range,” she said.

“CBA’s results were very strong. However, the big bank’s net interest margin – the amount it generates from lending money out versus the deposits it receives – may have peaked late in 2022.”

The bank also increased its provision for doubtful debts, with more likely to come as the RBA raised rates further, Ms Wulff said.

Apart from CBA, other big banks were hit hard too. Westpac shares fell 4.3 per cent, ANZ was down 3.8 per cent and NAB dropped 4.1 per cent.

Originally published as Commonwealth Bank shares sink despite revealing record profit