Commonwealth Bank of Australia matched expectations for flat second-half earnings, and warned of a challenging year ahead due to volatile global markets and upward pressure on funding costs, sending its shares down over 2 percent.
CNBC.com
CBA, the country's second-biggest lender, also said on Wednesday it was pulling out of talks with Royal Bank of Scotland to buy ABN AMRO Australia, saying its board believed it would not be in the best interests of shareholders to proceed with the acquisition in the current environment.
ABN AMRO's Australian and New Zealand operations had been valued by analysts at about $777 million.
CBA is the first of Australia's four big banks to report in a market where global credit woes have begun to infect local banks, interest rates are at a 12-year high and economic growth has begun to slow, fuelling worries of large loan losses.
The result, in the context of a global credit crisis and domestic economic slowdown, reassured some investors that Australian banks were still in relatively good shape.
"It has been a solid performance in what has been a challenging year for the global banking industry," Chief Executive Officer Ralph Norris said in a statement. But the bank added: "The outlook is cautious going into the new financial year."
"I think they (the CBA results) are encouraging. The provisions they have taken are up but well within comfortable levels," said Mark Nathan, fund manager with Fortis Investment Partners. "Australia is certainly going to get through (the credit crisis) without any material long-term impact. There's no risk of Australian banks going under," he added.
Some analysts believed CBA's decision to withdraw from discussions to buy ABN AMRO Australia could mean it was waiting for prices to come down further.
"It's tough financial conditions ... there may be better opportunities around, and it could be because capital is at a premium now. They may think there is further weakness coming through," Karara Capital investment manager Rohan Walsh said.
"It's not bad being disciplined now. Investors are concerned about the broader financial environment. It could be a good deal in a few years' time," Walsh said, not seeing a justified reason that the shares were down after what he described as reasonable results.
A consortium led by the Royal Bank of Scotland bought Dutch bank ABN AMRO last year and has been looking to sell some assets to stregthen balance sheets battered by the global credit crisis and financial market turmoil.
CBA said January-June cash profit was flat at A$2.3 billion (US$2.0 billion) from A$2.33 billion the same period last year, and matching expectations of analysts who predicted an average cash profit of A$2.34 billion according to a Reuters survey.
Cash profit is after tax and minority interests but before pension plan expenses and treasury share adjustments.
By late morning, CBA's shares were down nearly 2 percent at A$43.68 after hitting an early low of A$43.31. The stock has lost around 26 percent so far in 2008, in line with a 24 percent drop in the seven-stock Australian banking sub-index.