CBA profit set to pass $9 billion

But the bank’s share price has been sliding for the past week as investors weigh up concerns about how much capital it will need to raise to meet new reserve requirements imposed by the Australian Prudential Regulatory Authority.

CBA said its capital raising “places the group in the top quartile of its global peers in relation to its capital levels”. 12 and have gained 2.1% in the past 12 months, outpacing a gain in the S&P/ASX 200 Index of just 0.3%. “Our announcement today strengthens our position in response to those requirements”, Narev added about the capital raising.

Commonwealth Bank rightly has a reputation as a profit-generating machine, but its latest .14 billion in earnings show the engine isn’t running as smoothly as it has in the past. Customer deposits grew by 16 percent to $46.8 billion. So the DRP could get CBA all the way to raising enough capital to meet the higher mortgage risk weights by the July 2016 deadline. Unless a bank could point to a CET1 of 10 per cent or more, it would be arguable that it was “unquestionably strong”, Mott suggested. Following the capital raising, the group’s pro forma CET1 ratio will be 14.3 per cent on an internationally comparable basis (which assumes full implementation of the Basel III reforms), and 10.4 per cent on an APRA basis. The offer will be fully underwritten to raise approximately $5 billion.

Aside from capital, banks are also starting to feel the pinch from a combination of rising bad debts and tighter margins due to fierce competition in home lending.

CBA’s result also showed a slight rise in soured loans, which have been at historically low levels, boosting bank profits. However, as Mott observed last week, CBA’s very large retail base dependent on its dividends made reductions of the dividend unlikely.

NAB raised .5 billion in May; ANZ announced a $3 billion raising last week, and Westpac raised billion through its dividend reinvestment plan in May.

“Whatever the mechanism, we consider CBA to be in a privileged position of being able to raise equity at significant premium to book value”.

A CBA capital raising would be well supported in the market, given the strength of its grossed-up dividend yield of 6.5 per cent and its sector-leading profit generation.

However, analysts think Westpac will need more.

ASB said its net interest margin rose 0.06 per cent to 2.44 per cent year-on-year, while operating expenses rose 5 per cent to $805 million as a result of “inflationary-related salary increases and continued investment in frontline capability”.