CBA to raise $5b, posts record profit

The Commonwealth Bank of Australia has released a record full-year cash profit of $9.14 billion, despite growing expenses associated with the remediation of financial planning clients, FOFA compliance and a profit drop in its wealth management arm.

CBA’s move to tap shareholders follows an even bigger $5.5 billion capital raising by NAB in May and a billion raising by ANZ a week ago.

CBA shares are in a trading halt ahead of the deal. Total dividend for the year was A$4.20, an increase of 5 percent.

Its net interest margin, which represents the difference between the cost of funding and the pricing of loans, rose to 2.44 per cent. ANZ Bank’s shares tumbled more than 8 percent since its capital raising was announced. The Australian Prudential Regulation Authority also proposed last month that lenders lift their capital ratios by 200 basis points to be among the world’s safest banks. This brings the total funds raised by Australia’s major banks since May to $A17 billion.

Australia & New Zealand Banking Group Ltd.is raising A$3 billion after garnering about A$480 million earlier this year through a dividend reinvestment plan, where investors swap all or part of their dividends for new shares.

Commenting on the result, CBA chief executive Ian Narev said: “This financial year saw all-time highs in retail customer satisfaction, with the group returning to the number one position at year-end, and ongoing high levels of customer satisfaction in our other businesses”.

Mr Narev said Australia needed to ensure its policy environment positions the economy to benefit from its strengths, in a subtle swipe at Canberra.

Morgan Stanley analyst Richard Wiles said in a note that if the APRA’s risk weight changes were taken into account, CBA and Westpac (WBC) would have the lowest capital ratios of the big banks.

“Excluding this volatility, underlying growth of 8 per cent was influenced by strong business and rural lending growth of 14 per cent on the previous financial year”, Chapman said.

Margins have a critical influence on profits, and CBA’s contracted by 5 basis points to 2.09 per cent in the year, due to lending competition and a need to hold more liquid assets. The offer will be fully underwritten to raise approximately $5 billion. This would be $3.4 billion, based on its risk-weighted assets at the end of the first half.

Sovereign Assurance, which is also owned by CBA, lifted profit 19 percent to $123 million on a 13 percent gain in insurance income to $250 million.