Australia's CBA May Cut Dividend as First-Half Falls

Commonwealth Bank of Australia, the country's third-biggest lender, warned investors on Wednesday it might have to cut future dividends as it posted a 16 percent fall in half-year profit.

CNBC.com

CBA's half-year cash profit was in line with a market update it issued last week, and was dented by a global crisis that slowed credit growth and sent bad debts soaring. Its shares fell 1.9 percent to A$29.05 in early trade, in a broader market down 1.1 percent.

CBA kept its interim dividend unchanged at A$1.13, the first time in 16 years it has not raised the half-year payout, and warned over future dividends in a comment likely to worry many shareholders who buy the stock because of its income.

"In the current uncertain economic environment we cannot guarantee to maintain future dividends at past levels," Chairman John Schubert said in the results statement.

Australian banks are battling tough global credit markets, a slowing domestic economy and rising risk of defaults among corporate borrowers, but have not been hit as hard as some U.S and European counterparts.

"Their comments that dividend in the second half could be affected, while it may be concerning for some, the reality is that like so many other companies they are affected by the significantly changed times," said Jamie Spiteri, manager of institutional sales at Shaw Stockbroking.

"So distributions are going to be cut in every likelihood going forward. To some degree it is being reflected in the share prices."

Having secured over 88 percent of its long-term funding, the bank said it was in a good position to carry out acquisitions in an attractive market.

"This is a once in a generation opportunity for acquisitions. Obviously assets are dramatically cheaper right now," CBA's chief financial officer, David Craig, told reporters.

In October last year, CBA agreed to buy struggling British bank HBOS's Australian unit BankWest and other assets for A$2.1 billion, to boost its market share in fast-growing Western Australia state.  

Craig said the bank was not currently holding discussions with Australian insurer and bank Suncorp-Metway Ltd, which could sell its banking business.
     
Impairment Charges Rise

Commonwealth's impairment charges in the half soared to A$1.6 billion from A$333 million, as it flagged last week, and while bad debts had previously been single large exposures, it said it is beginning to feel the effects of a slowing economy on smaller businesses.

"There is certainly some discomfort, as you would expect, you see shops close, but it's not having a significant impact on our book yet," Craig said.

There was no evidence of a broad deterioration in credit quality, although arrears in consumer lending had begun to increase, it said.

CBA's July-December cash profit fell to A$2.01 billion ($1.32 billion) from A$2.39 billion a year earlier. The bank had flagged last week it expected six-month cash profit of about A$2 billion.

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Cash earnings, widely used by analysts as an indicator of core profit, exclude one-off items and non-cash accounting items and form the basis for dividends.

CBA shares have risen 2.4 percent so far in 2009, outperforming an 11.5 percent drop on Australia's financial sector sub-index.

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