CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

Why 2 top brokers have ‘sell’ recommendations on CBA shares

We take a look at why Citibank and UBS both have maintained their sell recommendations on the Commonwealth Bank of Australia following the firm’s Q1 results.

You really have to feel for the big four banks at this point. Low interest rates are wreaking havoc on their margins and the multi-billion dollar impact of the Royal Commission persists.

Brokers aren’t playing ball either: Citibank and UBS both maintained their sell recommendations on CBA following the release of the bank’s Q1 results yesterday.

The real story of the Commonwealth Bank

As we discussed yesterday, CBA posted mostly good first quarter results: cash profits were up, and lending volumes rose across the board.

Yet it was probably an article from the Australian Financial Review (AFR) that summed up potential issues for the bank most aptly. Here the headline read:

‘CBA profit jump hides bank treading tough waters.’

Of course, no one is really pretending that the banks aren’t doing it tough, Matt Comyn himself noted the 'challenging operating environment, characterised by global macro-economic uncertainty and historically low interest rates.'

CBA share price: the analyst view

With the above considered, its unsurprising that a number of brokers remain bearish and investors uncertain on CBA’s prospects, with the bank’s share price falling 1.97% by the end of today's session.

Citibank reiterated their sell recommendation and put a 12-month share price target of $72.50 on CBA.

Centrally, Citibank pointed out that it expected the bank’s net interest margin (NIM) to be broadly flat in the second quarter of FY20, even though margins were stronger in the quarter just passed.

Interestingly, one key area where Citibank’s analysis differs from UBS’s is in the reading of the bank's capital position. Here, Citi described CBA’s capital position as ‘soft’ and noted that the big four's exposure to risk weighted assets rose quicker than previously anticipated.

As an additional point, and with the Reserve Bank of New Zealand’s decision on capital requirements still pending, CBA’s lending momentum picking up and with the bank launching a 'revised transaction path' for the sale of its life insurance business, Citibank now expects a delay in buybacks. This in turn, will put pressure on CBA’s current valuation premium in relation to the other big four, thinks the investment bank.

UBS took a comparably bearish view mind you, also reiterating their sell recommendation and putting a slightly lower share price target on CBA than Citibank of $70.00 per share.

While UBS was impressed that CBA's net interest margin had improved and that the bank's cash profits (NPAT) rose; it also noted that caution should be taken by investors, pointing out that Q1 is typically seasonally strong for the Commonwealth Bank of Australia.

Yet all of this seems very-much a case of delaying the inevitable: specifically, UBS pointed out that one of the core reasons that CBA's NIM did rise was due to the 3 week delay the bank took in passing on the RBA rate cut to its variable rate mortgage customers.

In line with this, the investment bank expects CBA's NIM to decline in the second quarter (just like Citibank), as the impact of lower rates becomes more apparent.


The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

Act on share opportunities today

Go long or short on thousands of international stocks with CFDs.

  • Get full exposure for a comparatively small deposit
  • Trade on spreads from just 0.1%
  • Get greater order book visibility with direct market access

See opportunity on a stock?

Try a risk-free trade in your demo account, and see whether you’re on to something.

  • Log in to your demo
  • Take your position
  • See whether your hunch pays off

See opportunity on a stock?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Trade a huge range of popular stocks
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See opportunity on a stock?

Don’t miss your chance. Log in to take your position.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.