CBA shares tumble amid confusion over full year profit result

AAP General News (Australia)
08-22-2001
CBA shares tumble amid confusion over full year profit result

By Belinda Tasker

SYDNEY, Aug 22 AAP - Bank bashers must have cheered when the news rang out of the Australian
Stock Exchange that the Commonwealth Bank of Australia's annual profits had tumbled 11
per cent.

Investors responded by bailing out, sending CBA shares down by nearly two per cent
in the first 15 minutes of trading today.

But was the "bad" profit news all that it seemed?

At first glance, CBA's bottom line net profit had indeed fallen to $2.398 billion for
the year to June 30 from the record $2.7 billion it reaped in 1999/2000.

But bank officials tried to stem the fallout from the news by saying the $2.7 billion
figure for the previous year had included a $967 million abnormal gain which inflated
earnings, making it an unfair comparison.

Instead, they said, profits had actually risen by nine per cent to $2.262 billion once
they excluded all the "abnormal items, goodwill amortisation and life insurance and funds
management appraisal value uplift".

Simple explanation? Investors appeared to think not.

They continued to dump the stock in afternoon trade, pushing the price as low as $30.76,
despite the $2.262 billion net profit being in line with analysts' expectations.

The shares dumped 80 cents to close at $30.80.

The last time Australia's second biggest bank suffered a fall in annual profit was
in 1997 when its annual earnings dipped four per cent to $1.078 billion.

Since then shareholders have been impressed with news of steady growth in the bank's
income from fees, cost cutting and expanded financial services offerings.

Analysts said that investors had initially dumped their CBA shares today in response
to the 11 per cent drop in bottom line profit.

There were also concerns about CBA's "cautious" outlook for its new fiscal year which
included expectations of a further weakening in credit quality in the corporate sector
after the bank suffered a 24 per cent blowout in bad debts.

One analyst, who asked not to be named, said investors had begun switching out of CBA
and into its bigger rival, National Australia Bank Ltd.

"The market is always looking forward and really, the only bank that offers any sort
of options for growth is NAB," he said.

"NAB has more growth opportunities than CBA, but that doesn't mean it will be successful
with them.

"(NAB) may decide it can't get an acquisition in the UK but then it will probably be
in a position to hand over a nice capital return to shareholders. So it's a win-win for
them."

Meanwhile, CBA has its $10 billion Colonial acquisition tucked under its belt and only
very small operations in the UK.

Whether investors think this is enough to spur its profits over the long term remains to be seen.

AAP bt/sh i

KEYWORD: CBA FRONTER

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