By Paulina Duran and Shashwat Awasthi
SYDNEY/BENGALURU (Reuters) – Commonwealth Bank of Australia, the country’s largest lender, on Wednesday announced a record A$6 billion ($4.41 billion) share buyback as an economic rebound from the pandemic pushed its annual cash profit up almost a fifth.
Australia’s early control of the pandemic in 2020 and the resulting swift economic rebound have driven property prices and credit growth higher, boosting banks coffers.
But a re-emergence of the highly contagious Delta variant of the coronavirus and ongoing lockdowns in major cities is clouding the outlook again.
“The pandemic continues to have an impact on the Australian economy, as well as the health of our communities,” Chief Executive Matt Comyn said.
With A$11.5 billion in excess capital, mostly built through divestments such as its asset management and general insurance units, CBA feels it has plenty of capacity to return a portion of that and still be able to absorb potential stress.
The bank, which also increased its dividend, is the latest of the country’s cash-jammed Big Four banks to approve multi-billion capital returns to shareholders, and analysts expect more in the next two years.
On top of the buyback, the bank said it would give A$2.1 billion in excess tax credits for Australian tax-payers, and would reduce share count by more than 3.5%. This would result in higher key profitability metrics such as return on equity, earnings per share and dividend per share.
The buyback offer will be at a discount in the range of 10%-14% to the market price, it said. CBA shares were 2.3% higher in early trading at a record high of A$109.03 per share.
Smaller rivals Australia and New Zealand Banking Group and National Australia Bank last month said they planned to repurchase shares worth a combined A$4 billion.
EXPENSES RISE
Comyn acknowledged the strength of Australia’s economic recovery over fiscal 2021, but said the continuing pandemic and lower interest rates would pressure the bank’s future earnings.
“We anticipate ongoing economic impacts and earnings pressure from lower interest rates,” he said, adding that the bank would continue to invest in its business.
The lender, which follows a different reporting calendar than its rivals, said cash net profit after tax rose 19.8% to A$8.65 billion in the year ended June 30, beating an average estimate of A$8.55 billion from five analysts.
Expenses, however, rose 3.3% to A$11.36 billion, higher than analysts at Goldman Sachs, Credit Suisse and JPMorgan expected.
“Investors will receive the capital return announcement well, but will be starting to ask at what point is it priced in,” Citigroup banking analyst Brendan Sproules said.
“Despite an overall in-line result, the revenue outlook appears more challenged than our expectations.”
The bank declared a final dividend of A$2.00 per share, equivalent to about 71% of cash earnings and higher than the 98 Australian cents last year, when the country’s regulator had capped payouts.
Loan impairment expense fell to A$554 million from A$2.52 billion last year.
(Reporting by Shashwat Awasthi and Anushka Trivedi in Bengaluru; Editing by Stephen Coates)
