Politicians have been out there bashing banks again with CBA’s announcement of a record $9.45 billion profit. Of course if the bank keeps up with inflation it will be a record, and because it’s a big company it will be ‘fat’.
The table in the AFR gives the profit as $9.247 billion as against $9.084 billion last year. The true measure is in net earnings per share (eps) which came in at 542.5 cents, actually down from 553.7 cents last year. That’s a drop of about 2%.
The final dividend was maintained at $2.22 per share, so shareholders breathed a sigh of relief that it didn’t go down.
Bill Shorten’s comment was ignorant, and I think disgraceful:
- “If I have to make a choice between keeping Ian Narev and the board of the Commonwealth Bank happy, or keeping the Australian people [happy] and the Australian economy improving, I will choose the Australian people and the Australian economy every time. I just wish Mr Turnbull would do the same thing.”
The Greens want to tax the banks because they are there, it seems irrespective of profitability:
- The Greens renewed their call on Wednesday for a royal commission as well as their proposed tax on bank–- a “Too Big to Fail Levy” of 20 basis points on bank assets in excess of $100 billion – which would raise $15 billion during four years.
They should look at toll road operator Transurban, which is expected to grow eps by 47% over the next three years, or other companies showing similar growth such as blood products group CSL, but the pickings would not be as great because they are smaller.
A healthy economy needs profitable banks. Banks share prices were down on Thursday because because “revenue growth is under considerable pressure”, “dividend sustainability pressures have increased” and “asset quality is now on a deteriorating trend”.
The latest guidance I have shows ANZ’s 3-year growth forecast at -1.7% and Westpac’s at -6.2%.
At present prices both would be offering a yield of over 6% fully franked, but analysts are questioning the banks’ ability to maintain dividends. If that is bad for me it will be bad for your super fund and bad for the country.
The Reserve Bank in cutting rates was trying to push the $A down:
- Outgoing Reserve Bank governor Glenn Stevens, whose rate cut was designed more to protect the dollar than stimulate growth, indirectly backed the banks, saying the RBA had not anticipated that the banks would pass on the full 25-basis-point cut.
Since the rate cut the dollar has been rising. The Reserve understands how banks get their money and what they pay for it, but monetary policy doesn’t seem to work any more.
Meanwhile none of the above should be taken to mean I support some of the practices of banks, or that we shouldn’t have a royal commission. If we do, along the way politicians too might learn some of the basics about bank profitability. Banks on their side might come to understand why such a well of resentment has built up in the community about how they operate.
Banks have been an amazing growth and profitability story over the last 15 years, and only had a temporary setback during the GFC. For example, the Commonwealth Bank floated in 1991 at $5.40 per share. Now they are worth about 14 times that and pay a dividend of over $4 per share each year. Along the way banks have invented new ways of screwing money out of the system, at times ruthless and unethical. However, the current investment metrics paint a different and concerning future.
We need a change of culture from the banks, but we need also not to damage them by taking a ‘dividend’ that isn’t there.