CBA to slash final dividend by 25%

Commonwealth Bank of Australia (CBA) will slash its final dividend by 25 per cent
and has declined to forecast future cash earnings, saying operating conditions
remain challenging.
CBA on Wednesday posted unaudited cash earnings of $1.15 billion for its March
quarter that included a positive earnings contribution from newly acquired
subsidiary BankWest.
CBA chief executive Ralph Norris said March quarter cash earnings were "slightly
lower" when the earnings contribution from newly acquired subsidiary BankWest was
excluded and a clean period-on-period comparison was made.
The March 2009 quarterly update on Wednesday was the first time CBA has released a
quarterly cash earnings figure.
Revenue growth continued on wider margins and higher income from the bank's Markets
division, the bank said without releasing a revenue number.
Bad debts climbed to $630 million for the quarter as unemployment took its toll in
what chief executive Ralph Norris described as "a very unpredictable environment".
"In this environment capital preservation is a high priority," Mr Norris said, after
the bank announced a 25 per cent cut to its final 2009 dividend to $1.15, a
reduction that was in line with its peers.
The cut will leave the full year 2009 dividend at $2.28, 14 per cent lower than the
previous fiscal year.
CBA's dividend payout ratio was likely to stay around 73 per cent based on cash
profit, but dropped to 45 per cent after stripping out dividend reinvestment, Mr
Norris said.
Chief financial officer David Craig said CBA would look to raise capital via a
hybrid issue when the time was right.
Peter Wright, an associate with Burrell Stockbroking, said the bank's results and
dividend cut had already been factored into the share price, which finished 14 cents
firmer at $36.74.
IG Markets research analyst Ben Potter said there was no bad news in the result.
"I think it was very much an in-line result. It clears the slate for them going
forward a little bit."
CBA has the nation's largest share of home loans and lifted its share by 2.15 per
cent in the past 12 months to 24.3 per cent, partly by offering the lowest interest
rate on standard variable mortgages of the big four banks.
In the March quarter the bank's home loan balances surged by 22.1 per cent, with a
quarter of all new business from first home buyers, Mr Craig said.
Mr Norris said the net interest margin on its loan book - around 20 basis points
below peers - would have to be clawed back.
"Our position there is not sustainable over the medium term and there will be a
situation where our margins converge back more closely to industry average.
I would expect that to happen over the balance of the calendar year."
CBA said a rise in the unemployment rate to eight per cent would have a material
effect on its unsecured loans portfolio.
Revenue from CBA's trading operations was still above average but was expected to
ease in future, Mr Craig said.
March quarter revenue from trading operations was flat on the March 2008 level, he
said.
Mr Norris said CBA has stopped any further expansion of BankWest on the east coast
of Australia because branches in that region were not profitable.
"The business plan for those branches indicated they would be profitable within 36
months," he said.
"There's nothing that we've seen to date that would contradict that assessment ...
but the aggressive expansion plans that were in train have been discontinued."