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CBA share price drops 2.8% as profits dive and costs swell

Here's the key things we learnt from the Commonwealth Bank’s 2019 full-year results.

CBA Share Price Source: Bloomberg

The Commonwealth Bank of Australia (ASX: CBA) saw its share price dive in morning trade after reporting full-year results that missed profit expectations.

Even Wall Street’s rally overnight couldn’t help the bank, as CBA’s share price fell as much as 2.81% after the open, dropping below A$78 per share.

Here are some of the key things we learnt from CBA’s full-year results:

Commonwealth Bank misses expectations

As costs mount and the local and global economy shows signs of strain, the Commonwealth Bank of Australia's share price declined off the back of full-year results that saw profits miss the mark.

Underscoring the bank’s market dominance, when CBA released its full-year results this morning, it reported impressive revenue figures of A$24.34 billion.

Though the bank’s top-line remained strong, as headwinds from the Royal Commission persist, the bank saw its bottom-line come under pressure in the 2019 financial year.

Here, CBA reported a full-year cash profits of A$8.49 billion, 4.3% below the A$8.88 billion average analyst estimate, according to Bloomberg Data.

Speaking of these weaker FY2019 results, CBA’s Chief Executive Officer, Matt Comyn maintained that:

‘This year’s headline results were impacted by customer remediation costs, revenue forgone for the benefit of customers and elevated risk and compliance expenses.’

Even still, Mr Comyn was quick to point out that:

‘Our core business continued to perform well – underpinned by growth in home lending, business lending and deposits.’

Investors clearly weren’t happy with such explanations, as CBA’s share price fell off the back of these results, hitting A$77.7 per share at 10:09 AEST.

The costs of doing business

Operational expenses grew 2.5% in the 2019 fiscal year, as remediation and compliance costs increased. All up, in 2019 the bank paid out A$2.2 billion in customer remediation costs, up from A$1.0 billion the year prior.

Mind you, it’s not just the Royal Commission impacting the bank's profitability.

With the RBA’s decision to keep interest rates at a historic low of 1.00%, CBA commented that this will impact a number of key drivers of profitability for the bank, including ‘announced home loan repricing’.

Finally, though the bank's expenses did grow, the Commonwealth Bank of Australia remains in a strong financial position. Overall, in FY19, the bank improved its CET1 ratio and currently sits above APRA’s ‘unquestionably strong’ threshold, with a CET1 ratio of 10.7%.

Commonwealth Bank dividend held flat

Income-oriented investors will likely be most interested with the Commonwealth Bank of Australia's decision to hold its dividend flat.

The company’s final dividend, set to be paid September 26 came in at A$2.31 per share, in line with analyst estimates.

Adding to this, CBA announced that there would be no special dividend following the full-year release.

Positively at least, the bank did not flag any expected dividend cuts in the future. As we noted in our previous piece covering CBA’s earnings, Morgan Stanley saw the potential for the bank to cut its dividend in the 2020 fiscal year.

Analysts not looking happy

Even though the bank has not flagged any dividend cuts, analysts’ view on the bank is not a positive one.

Before the market opened and according to Bloomberg Data, of the 15 analysts covering the biggest of the big four bank, only one analysts rates CBA a buy. Seven rate it a hold and seven a sell.

While analysts look bearish on the bank, CBA’s share price has been a consistent performer year-to-date, rising around 10.6%.

Closing remarks

Now that the Commonwealth Bank of Australia has released its 2019 full-year results, investors will likely turn their attention to the next 12-months.

Speaking of the gloomier outlook we are currently witnessing across the globe, CBA's Chief Executive Officer Matt Comyn, reiterated that CBA is committed to:

‘Maintaining a strong balance sheet to enable continued investment and to support long-term sustainable returns to shareholders.’

With Mr Comyn finishing that:

‘Ultimately household income growth will be key, as will the links to consumer and business sentiment in the coming years.’

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