By Danny John
INVESTORS wiped nearly $2.5 billion from the value of Commonwealth Bank yesterday after a faltering second-half performance took the gloss off a record $6.1 billion annual profit.
Market jitters about the bank's operations were fuelled by chief executive Ralph Norris's comments on the immediate economic outlook, in which he admitted that the stuttering global recovery had affected its bottom line.
The bank's shares dropped $1.56 - or 3 per cent - to $51.19, which is nearly $9 below their 2010 high.
While CBA's traditionally strong second-half cash profit of $3.1 billion was 7 per cent ahead of the first six months' figure of $2.94 billion, it was not as healthy as some industry watchers had been expecting.
That was a consequence of the group's main profit powerhouse, its retail banking division, going backwards by 2 per cent to $1.21 billion between January 1 and June 30.
The division, which turned in $2.4 billion for the full year, is responsible for 40 per cent of the bank's annual earnings.
The group's latest half also saw Bankwest incur a small loss due to higher bad debt charges while wealth management dropped 11 per cent and business banking only increased its contribution by 3 per cent.
The institutional and corporate banking arm and New Zealand helped bridge the gap, both increasing their profit in that period to lift the group's preferred measure of continuing profits for 2010 to $6.1 billion and its reported after-tax figure to $5.6 billion.
Mr Norris said the group's overall annual result was a good one, helped by a $1.3 billion reduction in bad debt charges to $2 billion, and an increasing share of income from a market now dominated by the big four banks.
The outcome for the year to June 30 was up 42 per cent from the global financial crisis-ravaged figure of $4.3 billion for 2009.
Nonetheless, while shareholders gained from a 34 per lift in earnings per share to $3.95 and a 27 per cent rise in the full-year dividend payout to a record $2.90 a share, analysts were disappointed by a fall in net interest margins half on half.
That is the money the bank earns on its loans once all costs are stripped out.
But it was the prospects for the coming year that added to investor worries, especially as credit growth remains low and consumers are reluctant to spend - factors that are big drivers of the banking industry's earnings.
Mr Norris said the fragile consumer and business confidence was weighing on the domestic economy, while the global picture was being mired by the slow pace of recovery in the US and Europe.
"This fragility manifested itself in a slowing in the underlying momentum of our business at the end of the 2010 financial year," he said.
"As a result, it is appropriate to maintain a degree of caution about the prospects for our business for the coming year."
His comments overshadowed a healthy 11 per cent year-on-year growth in income as the bank benefited from growing market shares across its business.
It also increased its level of tier 1 capital - the main measure of a bank's financial strength - while the earnings boost saw its return on equity rise to an impressive 18.7 per cent.
The latest result underlines the continuing strength of Australia's banks, of which the big four are set to turn in a combined record of $20 billion in profits this year.
Mr Norris said the outcome also revealed the resilience of the group's franchise as well as its strong capital position.
This drew praise yesterday from one of the main credit rating agencies, Fitch, which re-affirmed Commonwealth Bank's AA status to retain its position as one of the world's strongest banks.
''Australian bank asset quality remains sound and is one of the main reasons why the major Australian banks have retained access to wholesale funding markets during the crisis,'' said Tim Roche, a director with Fitch.
The continued uncertainty caused by the fallout from the global financial crisis, including regulatory demands for banks to keep more cash on their balance sheets, saw Commonwealth increase its levels of liquidity to $89 billion by the end of June.