Banking analysts yesterday were announcing modest upgrades to their full year’s earnings forecasts for Commonwealth Bank, after CEO Matt Comyn unveiled a higher than expected first quarter profit update.
The bank generated an unaudited first quarter profit of A$2.5 billion on the back of tight cost control and a surge in fee income from banking activities.
Comyn said the September quarter result demonstrated that the bank’s businesses were fundamentally sound.
“The fundamentals of our business remain strong, highlighted in this quarter by continued deposit growth, sound credit quality and balance sheet strength,” he said.
“The quarter saw continued progress against our strategy, with focus on delivering on our response to the APRA Prudential Inquiry.
“This is a significant program of change that will ultimately ensure we are a better, more customer focused bank.”
Underpinning the solid result was a 1 per cent reduction in operating costs excluding one of items.
CBA also benefitted from a revival in growth of its retail deposit book after a year in which it expanded household deposits slower than the system average.
The bank now relies on customer deposits to fund more than 68 per cent of its lending – making the major bank least dependent on wholesale funding.
However, rising wholesale funding costs did bite the group in the September quarter, with the net interest margin falling.
Comyn did not say how much the NIM declined by but attributed the reduction to higher funding costs and competitive pressure in the home loan market.
CBA announced a 15 basis point rise on all standard variable rate mortgages in the first week of September, but the revenue benefit of the changes will not flow through until the December quarter because the rises did not take effect until October 4.
Comyn yesterday fronted retail shareholders for the first time as CEO at the company’s annual meeting in Brisbane.
While he and chair Catherine Livingstone copped a pasting from investors agitated by the bank’s annus horribilis, all resolutions put to the meeting – including the remuneration report - were passed with overwhelming support.
Livingstone tried to defuse the enthusiasm of recalcitrant shareholders by apologising for the bank’s past recklessness.
“These inquiries have scrutinised our failings of judgement and of leadership, and of systems and processes,” she told the shareholders meeting.
“Most confronting is that these shortcomings led to cases of poor customer experience, and examples where we did not act in the best interests of customers.
“Your board and I regret these failings, and we apologise, without reservation: to our customers, to our staff, to you our shareholders, to our regulators, and to the broader community.”
The chair then launched into a discussion of how the bank had responded to the wave of compliance problems that had confronted it over the last 12 months.
While conceding that CBA had got plenty of things wrong in relation to anti-money laundering, Livingstone said the bank would vigorously defend class actions brought against it over alleged non-disclosure to the ASX of Austrac-related matters.
She told the meeting that the Hayne royal commission’s interim report was “rightly critical of the financial services industry”.
“We recognise that in relation to our bank, the misconduct examined raised questions about competency, complacency and priorities,” she said.
“When people or processes failed, there were neither the systems nor processes in place to identify and fix the problems, nor a sufficient sense of urgency to identify the root cause and take steps to prevent similar issues arising again.”
CBA scrip rose 40 cents to 69.35.