Daily ShareChat: Commonwealth Bank of Australia

By Jenny Ruth

Thursday 20th May 2010

Commonwealth Bank of Australia, which owns ASB Bank, is seeing asset quality improving but mounting revenue pressures, in line with its peers, say RBS Equities analysts.

The bank reported unaudited cash earnings of A$1.5 billion (NZ$1.88 billion) for the three months ended March, about 30% higher than in the same quarter a year earlier although flat compared with the three months ended December.

"Asset quality trends are gradually improving with net new impaireds slowing and consumer delinquencies stabilising," RBS says.

"That said, revenue pressures continue to mount, driven by fee reductions, margin pressure and slowing treasury income," it says.

"Coupled with the 2% salary increases staff enjoyed at the beginning of calendar 2010, we estimate Commonwealth's underlying earnings actually went backwards in the third quarter."

Revenue headwinds look set to place increased pressure on the banking sector's ability to grow underlying earnings.

"While Commonwealth's core Australian franchise is performing well and drives the group's above-peer return-on-equity profile, it is by no means immune from the slowing revenue environment we thing the whole sector will face through 2010 and into 2011."

RBS has a A$53.16 12 month target price for the stock after cutting its earnings-per-share forecast by about 1%.

BROKER CALL: hold.

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