CBA - Commonwealth Bank of Australia

[Dona Ferentes]

The CBA share price premium is really getting out of hand

The bank’s inexplicable and self-perpetuating melt-up that veteran analysts unanimously agree defies the fundamentals is powering the broader index.

www.afr.com

Absolutely nuts, if you are a lucky owner from long past, be aware of the fundamentals

absolutely nuts, with flavour enhancer on top

On a Price to Book ratio, compared to global players

.
Top to bottom.
CBA
JPM
Bank of America
Mitsubishi UFJ Financial Group
Royal Bank of Canada
UBS
Industrial and Commercial Bank of China

…ICBC is the world’s largest bank by assets. JPM is the largest by market value.

 

[Dona Ferentes]

CBA cash profits have fallen 3 per cent in the first half of the financial year to $5 billion as profit margins continued to suffer from competition in the mortgage market.

The bank will pay a $2.15 per share dividend

Chief executive Matt Comyn reiterated that 2023 represented a challenging year for Australia’s largest lender and the broader economy

 

[Bailxtrader]

CBA record over 5bn in profits. Yet I havn't been paid any interest in 5yrs. I wonder were some or most of its profits come from? As a CBA banker I'm disgusted! They could share it around with its customers but NO their got Government Issues. #@%$!

Anyone else suffering?

 

[Dona Ferentes]

CBA record over 5bn in profits. Yet I havn't been paid any interest in 5yrs. I wonder were some or most of its profits come from? As a CBA banker I'm disgusted!

Anyone else suffering?

no

CBA net interest margin fell 6 basis points in the December-half to 1.99 per cent, as the bank suffered pressure on both sides of its balance sheet, with competition for deposits rising alongside the fierce battle for mortgage market share.

CBA said the margin squeeze was “due to increased competition, unfavourable portfolio mix mainly from customers switching to higher yielding deposits, higher wholesale funding costs and a lower contribution from New Zealand”.

 

[TimeISmoney]

CBA record over 5bn in profits. Yet I havn't been paid any interest in 5yrs. I wonder were some or most of its profits come from? As a CBA banker I'm disgusted! They could share it around with its customers but NO their got Government Issues. #@%$!

Anyone else suffering?

In my opinion, CBA is way overpriced. I bet the CEO's bank balance looks fine.

 

[sptrawler]

no

CBA net interest margin fell 6 basis points in the December-half to 1.99 per cent, as the bank suffered pressure on both sides of its balance sheet, with competition for deposits rising alongside the fierce battle for mortgage market share.

CBA said the margin squeeze was “due to increased competition, unfavourable portfolio mix mainly from customers switching to higher yielding deposits, higher wholesale funding costs and a lower contribution from New Zealand”.

Spot on Dona.
Plus there is the levy the Govt put on them in 2017, the banks are like the police, everyone hates them until they need them.

Chalmers rules out changes to bank levy

The levy was introduced by the Morrison government in 2017 to ensure the big banks paid some price for the implicit ‘too big to fail’ subsidy.

www.afr.com

From the article:
The bank levy is currently set at a 6 basis point impost on banks with total liabilities above $120 billion. Initially, the levy was expected to apply to about 75 per cent of banks’ liabilities and raise $1.6 billion a year over five years.

The bank levy on the four big banks and Macquarie raised $1.55 billion for the government last year and that is estimated to rise to $1.65 billion in 2025, as the big banks progressively replace cheap funding under the Reserve Bank’s term funding facility with more expensive funding from overseas markets.

Westpac chief executive Peter King said it had paid $2 billion in additional tax since the levy was introduced.

 

[InsvestoBoy]

Plus there is the levy the Govt put on them in 2017

As the article you linked clearly points out, the banks received and continue to receive ongoing Government support since the GFC in the form of the FCS bank deposit guarantee that is an absolutely gargantuan contingent liability on the Government as well as the comparatively astronomical contingent liability implicit in too-big-to-fail bailouts.

6bps on liabilities over $120b is a bargain.

Ask any of those bank executives if they want to forgo that explicit and implicit Government support in return for increasing profits by the equivalent of 6bps on liabilities, see what they say.

Here's what I would ask Peter King and Westpac board:

"sirs/madams, just sign this piece of paper that holds you criminally responsible on a personal basis in the event of the failure of your bank and we will not only stop collecting 6bps we'll even give you $2bn back plus interest, do you agree?"

the banks are like the police, everyone hates them until they need them.

Unlike the police, banks are private entities largely in control of their own funding and reinvestment decisions and could invest some portion of their profits back into:
* consumer protection and insurance from fraud/scams/etc
* rural branch network
* Australian customer service

and probably reduce their community hatred quotient by 95%, if they wanted to, can the police do that?

 

[Value Collector]

CBA record over 5bn in profits. Yet I havn't been paid any interest in 5yrs. I wonder were some or most of its profits come from? As a CBA banker I'm disgusted! They could share it around with its customers but NO their got Government Issues. #@%$!

Anyone else suffering?

How is that possible? Are you leaving your cash in a regular transaction account or something?

 

[Dona Ferentes]

 

[Value Collector]

As the article you linked clearly points out, the banks received and continue to receive ongoing Government support since the GFC in the form of the FCS bank deposit guarantee that is an absolutely gargantuan contingent liability on the Government as well as the comparatively astronomical contingent liability implicit in too-big-to-fail bailouts.

6bps on liabilities over $120b is a bargain.

Ask any of those bank executives if they want to forgo that explicit and implicit Government support in return for increasing profits by the equivalent of 6bps on liabilities, see what they say.

Here's what I would ask Peter King and Westpac board:

"sirs/madams, just sign this piece of paper that holds you criminally responsible on a personal basis in the event of the failure of your bank and we will not only stop collecting 6bps we'll even give you $2bn back plus interest, do you agree?"



Unlike the police, banks are private entities largely in control of their own funding and reinvestment decisions and could invest some portion of their profits back into:
* consumer protection and insurance from fraud/scams/etc
* rural branch network
* Australian customer service

and probably reduce their community hatred quotient by 95%, if they wanted to, can the police do that?

The FCS Bank deposit guarantee provides insurance to the depositors, not the Bank/shareholders equity.

By the time the FCS pays out dollars, the banks share holders and other senior securities holders will be wiped out.

Its a bit like a land lord (the bank) paying contents insurance for its tenants (the depositors), but the policy not paying out until all the land lords assets Have been exhausted.

 

[InsvestoBoy]

The FCS Bank deposit guarantee provides insurance to the depositors, not the Bank/shareholders equity.

By the time the FCS pays out dollars, the banks share holders and other senior securities holders will be wiped out.

Its a bit like a land lord (the bank) paying contents insurance for its tenants (the depositors), but the policy not paying out until all the land lords assets Have been exhausted.

I'm not saying it's insurance to bank equity, just that it's explicit support to banks from Government that shouldn't be free and that 6bps on liabilities over $120b seems like a bargain to me for that support when bundled with implicit TBTF support.

I didn't think I needed to explain the details as I provided a link to the APRA site that explains the scheme clearly.

 

[sptrawler]

When you consider how much money CBA has on loan to people and businesses, I wonder if $5b is a huge profit, I would think the loans would be up to a trillion dollars when you look at the prices of real estate and businesses etc.
maybe someone has the figures, I haven't time ATM.

 

[InsvestoBoy]

When you consider how much money CBA has on loan to people and businesses, I wonder if $5b is a huge profit, I would think the loans would be up to a trillion dollars when you look at the prices of real estate and businesses etc.
maybe someone has the figures, I haven't time ATM.

On bank balance sheets, everything is inverted, i.e. deposits are liabilities and loans are assets. Hence one can calculate the profit as a ratio of loans is simply Return on Assets

Return on Assets (ROA): Formula and 'Good' ROA Defined

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.

www.investopedia.com

From memory, a good ROA for banks is above 1% and also from memory CBA has always had the highest ROA of the big 4.

Current values from TradingView:
CBA - 0.8%
ANZ - 0.6%
WBC - 0.7%
NAB - 0.7%

Some offshore randoms:
JPM - 1.3%
BARC - 0.35%
HSBA - 0.5%
SAN - 0.6%

 

[Value Collector]

I'm not saying it's insurance to bank equity, just that it's explicit support to banks from Government that shouldn't be free and that 6bps on liabilities over $120b seems like a bargain to me for that support when bundled with implicit TBTF support.

I didn't think I needed to explain the details as I provided a link to the APRA site that explains the scheme clearly.

It’s explicit support to depositors, any benefit the banks get is just really a side benefit, which they pay for anyway.

The essence of your argument is not really on whether it should exist, but you seem to be concerned on price, and the price of the insurance always comes down to risk, and it is actually a very low risk.

eg, before the government has to pay out anything,

1, All shareholders funds need to be lost.

2, All unsecured deposits and bonds etc need to be wiped out.

3, All the remaining ”goods assets” of the bank need to be sold, or held in trust to pay the government back.

4, only then does the government lose anything, and this type of event is very rare.

its wrong to think that the government could be on the hook for hundreds of billions, it would only have to pay the shortfall between good assets and deposits after the shareholders and bond holders etc have been wiped out.

———————-

Not to mention any increase in the cost of the “depositors insurance” comes out of the amount that would be available to pay those depositors interest.

 

[Bailxtrader]

In my opinion, CBA is way overpriced. I bet the CEO's bank balance looks fine.

When you consider how much money CBA has on loan to people and businesses, I wonder if $5b is a huge profit, I would think the loans would be up to a trillion dollars when you look at the prices of real estate and businesses etc.
maybe someone has the figures, I haven't time ATM.

Try talking the hedge profits down by by announcing NZ Business for the 2nd half of 2023? Most of the profits paying the heads!

Media release
Wednesday 14 February 2024

ASB today reported a cash[1] net profit after tax (NPAT) of $707 million for the six months to 31
December 2023, a decrease of $96 million or 12% on the prior year. This reflects a lower net interest
margin (NIM), down 26bps on the prior year. Statutory NPAT is $749 million for the six months to 31
December 2023, a decrease of $91 million or 11% on the prior period.

Supporting our customers
“Our teams are proactively contacting business and personal lending customers to provide support
as they move to higher interest rates. More than two-thirds of our home lending customers are now
paying rates higher than 6% and we are pleased the vast majority are managing well. I would really
encourage any customers who do have concerns to reach out to us, our team is here to help.

 

[InsvestoBoy]

It’s explicit support to depositors, any benefit the banks get is just really a side benefit, which they pay for anyway.

Just close your eyes and go back to the heady days of 2008 to remember why the guarantees were instituted in the first place, depositors don't know how bank insolvency works or where they sit in the capital stack, if depositors feel the bank is at risk the deposits leave ASAP at a time when the market for wholesale funding is frozen.

The deposit guarantee is explicit support to the banks that ensures their most stable/usually cheapest form of funding doesn't flee and blow the banks face off in the middle of a crisis - something we saw happen at Credit Suisse and multiple regional US banks just last year.

Can't even believe it's a point of contention

 

[Value Collector]

Just close your eyes and go back to the heady days of 2008 to remember why the guarantees were instituted in the first place, depositors don't know how bank insolvency works or where they sit in the capital stack, if depositors feel the bank is at risk the deposits leave ASAP at a time when the market for wholesale funding is frozen.

The deposit guarantee is explicit support to the banks that ensures their most stable/usually cheapest form of funding doesn't flee and blow the banks face off in the middle of a crisis - something we saw happen at Credit Suisse and multiple regional US banks just last year.

Can't even believe it's a point of contention

Did depositors lose money in 2008? The last time in Australia any depositor lost money was in the 1930’s

 

[farmerge]

Did depositors lose money in 2008? The last time in Australia any depositor lost money was in the 1930’s

I would venture to say that the only time that depositors lost their savings was when the Bank of NSW (Westpac) went belly up.

 

[Dona Ferentes]

I would venture to say that the only time that depositors lost their savings was when the Bank of NSW (Westpac) went belly up.

remind me.

pyramid building soc. ...but that's another thread ... this is for CBA

 

[farmerge]

remind me.

Not that I was around back in those days but Bank of NSW went broke and I think was salvaged by the govt of the day and then later re badged as Westpac