The boss of Australia’s biggest bank has come out swinging after a $15 billion bloodbath that has hit more than 10 million Aussies.
Commonwealth Bank chief executive Matt Comyn brushed off suggestions it was “overpriced” after its share price saw a sharp drop despite posting a record $10.25 billion profit.
He said it would “focus on the things that we can control” after more than five per cent or $12 was wiped from its share price since Wednesday.
That meant more than $15 billion was slashed from the company’s value in the hours after it announced cash profits rose by four per cent over the past financial year.
An expert says the drop could be a result of investors believing the latest profit margins did “not shoot the lights out” and a move toward other banks and other parts of the market.
MATT COMYN – CBA CEO Matt Comyn speaks at the bank’s Reimagining Banking Briefing . Picture: supplied
Speaking to ABC radio on Thursday, Mr Comyn stressed the bank was looking at long-term performance and not daily fluctuations on the stock market.
“I think from our perspective, we focus on all the things that we can control, which is obviously doing kind of a great job serving and customers continuing to grow,” he said.
“In the last year, every day we helped 400 households buy a new home (and) we’ve leant $150 million.
“I think if we do all of those things well and we continue to invest in our technology and a better customer proposition, we should also be able to deliver a reasonable rate of return to our shareholders over time.
“Of course, we’re conscious of share price performance … more than 10 million Australians own the Commonwealth Bank, either directly or indirectly.
“And it’s really about thinking about the long term of that performance versus a performance on a particular day.”
CBA is favourite buy for superannuation funds. Size matters when it comes to investing, and the bigger you are the more you will get from so-called passive investing.
This means people may not be actively seeking out CommBank shares but they are buying them passively because they are now such a big part of major part of index funds like the ASX200 or superannuation funds.
Commonwealth Bank takes up a massive 11.5 per cent of the ASX200 — an index of Australia’s top 200 companies.
This means that for every $1000 someone invests in the ASX200, CommBank will get roughly $115 while is next biggest rival Westpac will get just $45.
Why CBA is getting smashed
There has been debate in recent months about the market valuation of CBA, including after it became the first ASX-listed company to hit a value of more than $300 billion in June.
It came as shares surged 30 per cent over the past year to a high point of $191.40 on June 25, but by Thursday morning that had fallen to as low as $166.
Shane Oliver, chief economist at AMP, explained that Wednesday’s drop showed investors did not think CBA’s profits were in line with expectation.
“When a company share is being pushed up to very high levels, it gets harder and harder for profit results to beat expectations,” he told news.com.au.
“And so while the profit results were pretty good, it didn’t shoot the lights out relative to what the market had sort of factored in.”
Shane Oliver said the market had become overexposed to CBA.
Mr Oliver said CBA’s stock price had been declining steadily since that June high, saying market “rotation” was at play.
He noted that another of Australia’s big four banks, Westpac, had enjoyed a share price surge after releasing its latest quarterly figures on Thursday.
“The market has become very overexposed to CBA, less exposed to the other banks,” Mr Oliver said.
“And there’s I guess a bit of a rotation going on. CBA has been under some pressure since the high in June, and it’s come in various leaps.
“Part of it was a rotation towards the miners as the iron ore price started to rise.
“If you look at the chart (there was a) big down … from the high in June and it’s stabilised for a while and then another leap down in July and then rallied up again.
“Now it’s at another leap down to a new low. So it’s investors sort of positioning away from it to some degree in favour of some of the other banks and other parts in the market.”
Equity analyst Michael Haynes from Atlas Fund Management said CBA was not the first to see big stock falls in spite strong results this reporting season, pointing to similar events with QBE and JB Hi-Fi.
“Ultimately the business itself (CBA) is still operating quite strong, taking market share across both the retail and business bank,” he said.
“But the shares are a bit disconnected from the actual business itself, trading on quite high multiples compared to the actual growth of the profits.”
Commonwealth Bank’s share price dropped more than five per cent in one day. Picture: NCA NewsWire / Damian Shaw
Share trader author Alan Hull told news.com.au in June that CBA stocks were “a risky share to be buying”.
“Smart money is not buying CBA,” he said.
“It’s seriously overvalued. It’s earnings growth is anaemic. The current dividend yield is 3.74 per cent including tax imputations.”
The bank announced on Wednesday it was raising its dividend to $2.60 per share.
In April Kevin Doodney, an Australian housing futurist at the High Yield Property Group, said the ballooning bank stocks and profits was being fuelled in part by the nation’s housing crisis.
“In fact the ‘big four’ Australian banks make up four of the eight most profitable banks in the world,” he told news.com.au.
“They are making that money from a population of just 27 million people. There’s 8 billion people out there, for Christ’s sake.
“What the Australian public needs to ask is, how on Earth can that be possible? Because, I think the Australian people are going to look at that and go, nah, that’s not possible.”
CBA’s deal with OpenAI
Also announced on Wednesday was CBA’s new partnership with OpenAI, becoming the tech giant’s “strategic banking partner in Australia”.
The announcement stated the companies would work together on “advanced generative AI solutions” to scam, fraud and customer service.
Mr Comyn told ABC radio the bank would “like to work with them on some of the most important issues facing financial services, which are specifically scams, fraud, cyber and financial crime”.
“Last year, we spent more than $930 million in those areas. And we’ve reduced customer losses by 76% over the last few years,” he said.
“But we think there’s a lot more it could be done.”
OpenAI chief executive Sam Altman said the company was excited to work with CBA. Picture: Yuichi Yamazaki/AFP
Sam Altman, the boss of OpenAI, said it was “excited to work together to put advanced AI into the hands of more Australians, making it more useful and impactful for people and businesses across the country”.
CBA courted controversy last month when it revealed 45 call centre jobs would be axed and replaced by an AI chat bot, but Mr Comyn said that needed to be viewed in context.
“We employ approximately 50,000 people. We added more than 2000 over the last financial year across a broad range of roles.
“And of course, any job reductions are challenging, I think what we can do is most importantly be transparent about what we’re trying to do and why.”
He said the bank would work with OpenAI to build capacity for its workforce and
“essential skills which will be required for the future economy”.
Leave a Reply