CBA Shares Tumble as Bank Misses Estimates

Commonwealth Bank of Australia (CBA), Australia's second-biggest lender by assets, missed estimates with a 4 percent rise in first-half earnings, hurt by increased funding costs and higher provisions for bad debts, sending its shares down more than 5 percent.

CBA revealed that turbulence on global credit markets had seen its wholesale funding costs rise by about A$100 million ($90 million) before tax, while it also increased provisions for bad loans by 71 percent to A$333 million.

"This is a disappointing result by most key measures and provides next to no impetus for a change in market sentiment on the stock," Citigroup said in a note to clients.

CBA shares dropped as much as 5.3 percent to a 14-month low of A$46.80, outpacing a 0.5 percent fall in the benchmark S&P/ASX 200 index.

CBA's disappointing earnings weighed down on the sector, with shares in industry leader National Australia Bank and third-ranked Australia and New Zealand Banking Group falling 3 percent each.

CBA reiterated it had no direct exposure to subprime loans, while one of its hedge funds that had some investments in mortgage-backed securities was tracking ahead of the benchmark.

Volatility in global financial markets was expected to continue through this year, putting further upward pressure on domestic interest rates, the bank said on Wednesday.

The Reserve Bank of Australia last week raised interest rates to a decade high of 7 percent.

"Clearly we see the volatility continuing but how that affects our results depends on how our customers react in terms of loan losses," David Craig, CBA's Chief Financial Officer told reporters.


"Funding costs will continue to be high but we have now started to pass those higher funding costs on to our customers," he added.

CBA, also Australia's top mortgage lender and the biggest retail bank, reported July-December cash earnings of A$2.385 billion ($2.149 billion) versus a revised A$2.296 billion a year ago.

A Reuters survey of eight analysts on average forecast CBA to report a cash profit of A$2.47 billion, with estimates ranging from A$2.38-A$2.55 billion.

Cash earnings represent the core profit earned by banks and strip out unrealised profits or losses from interest and foreign exchange hedges. Cash profit also forms the basis for dividend payments.

CONTINUED : Higher Funding Costs

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