CBA results tipped to disappoint

UBS Warburg said CBA's first-half result, due on February 12, could ``disappoint to a greater extent than current expectations".

Earlier this month, UBS lowered its net profit forecast for CBA by $37 million to $1.14 billion below the cash profit of $1.17 billion in the previous corresponding period.

Thankfully for the bank's 700,000 shareholders, the broker expects the interim dividend to at least be maintained at 68c a share. Some brokers estimate it could be as high as 73c.

Helping to support the share price, CBA has maintained a higher dividend payout ratio than the other banks, hitting 76.2 per cent last year.

But concern about profit momentum after the 2000 acquisition of Colonial and a possible writedown in the wealth management division (Colonial First State) has relegated Australia's premium bank to the bottom of many analysts' preferred bets for the banking sector.

CBA has had to contend with some high-profile departures from Colonial in recent months, most recently the highly regarded analyst Suellen Henry.

Ms Henry is understood to have left after being approached by 452 Capital, the new venture set up by Perpetual's former star fund manager, Peter Morgan.

452 Capital recently formed an alliance with Colonial in which the boutique manager's funds will be available to retail investors through Colonial's FirstChoice master fund.

Ms Henry's exit follows the departures of Greg Perry, Chris Cuffe and Barry Henderson, shaking investor confidence about the performance of CBA's wealth management division.

Since September, the bank's share price has slumped almost $5 a share to Friday's close of $27.41.

UBS Warburg's Jeff Emmanuel said that with CBA trading at about 14 times 2003 earnings, it was maintaining its premium to the rest of the sector. However, Mr Emmanuel expected this to unwind further in the next year.

Macquarie Equities believes the dividend payout should support the share price nominally but it still expects the bank to underperform the market.

CBA managing director David Murray indicated at the November 1 annual meeting that there was a flat outlook for earnings per share due to restructuring expenses, lower investment markets, the expensing of staff share plans and weaker financial markets trading income.

Mr Emmanuel expects CBA's banking operations to record lending volume growth of 6.7 per cent in 2003, in line with the slowing market, and to experience increased margin pressure.

While there would be a sharp fall in earnings for the funds management division due to lost mandates and weak markets, UBS expects earnings to rebound in the second half.

Like UBS, ABN Amro's Jonathan Reoch has a ``hold" recommendation on CBA. ABN thinks CBA has the weakest growth outlook of the big banks.

One positive for CBA is the likelihood of a share buyback of about $500 million early this year, funded by a hybrid equity issue rather than surplus capital within the bank.

ABN said National Australia Bank was a preferable pick to CBA, given NAB was predicting 8 to 11 per cent growth for 2002-03. But CBA would probably benefit more from a sharemarket rebound.

CBA might also cut costs deeper than first thought, while NAB could undertake a large, risky banking acquisition in the UK.

``NAB has an exceptional capacity to return substantial amounts of capital to shareholders over the next three years, whereas CBA is constrained by its relatively low level of Tier 1 [capital] and the requirement to keep its dividend payout at a high level to meet investor expectations," ABN said.

* CBA said it had signed a four-year $100 million deal with Qantas to provide the airline with credit card services.

The agreement involves the development of a service integrating Qantas's booking system and CBA's card processing system to enable faster transaction processing and real- time authorisation of credit card transactions.