Perhaps it says something of David Murray's long and relatively
unblemished track record that investors have so taken to heart that Commonwealth
Bank's profit stutter early this month might finally signal the end of the
After all, retail investors aren't used to bad profit news from the CBA
In the past month, CBA shares have fallen 7.65 per cent or about $3 a share
to yesterday's close of $27.15.
That's much more than the nearest big bank, National Australia, which is down
1.86 per cent over the same period.
Of financial stocks, only fund manager Perpetual has performed worse. But to
put the fall into perspective, CBA's shares were not far north of these levels
only one year ago.
One broking analyst said yesterday there was very little buying interest in
the shares from institutional shareholders now.
Analysts interpreted the annual meeting forecast as foreshadowing less than 5
per cent growth in net profit, against double-digit growth in the past.
Most analysts now have Commonwealth Bank in fourth place when they rank the
stocks of banks, which in turn are all facing their toughest profit outlook for
Until recent months, CBA had traded on higher price earnings to its peers,
reflecting the higher esteem in which the bank is held by investors.
There are various theories of why the premium has existed. They include the
loyal retail investor base, high dividends and the bank's low-risk housing
dominated lending book. But it's hard to go past the bank's consistently high
return on equity and steadily rising profits and, until recent years, earnings
Unfortunately with the purchase of Colonial in 2000 for $10 billion, the
shine has gradually worn off as investors have also had to consider the success
of the merger and the impact of poor equity markets on the wealth management
One dissenting analyst says the capital adequacy issues raised this week have
been overblown. Mr Murray's assurance this week that there was no issue here
akin to the British life insurers (see AMP's big capital raising) should be
enough to convince the market. Given he is into his 11th year running the bank
(though he's still in his early 50s) and has shown a longevity few could match,
not many would be prepared to doubt his word.
At least three broking firms, including the highly rated JP Morgan team, have
been leading the concerns about capital recently.
Another fear is that retail investors, the bedrock of the stock, will flee
the stock on concern that the dividends will fall with the less than robust
But finance director Stuart Grimshaw has indicated that dividends will grow
in line with cash earnings.
On some figures, CBA's forecast dividend yield is about 6 per cent (based on
a probable 2003 dividend of around $1.60 a share).
This is higher than other banks, but also reflects that CBA has generally
had a higher payout ratio than NAB, ANZ and Westpac.
This means there is less leeway to increase the dividend yield if the board
wants to shore up market support.