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CBA profit boost expected, despite margin squeeze

Australian one hundred dollar bank notes

Commonwealth Bank, Australia’s largest bank, is scheduled to hand down its first-half results on February 9. On January 31 it flagged items that would impact its financial reporting for the first half, including an $85 million loss on its insurance income for the six months through December, the sale of a portion of its stake in Colonial First State, and revised accounting treatments of certain facilities and line fees.

Analysts expect CBA will make a cash profit of $4.37 billion for the half, which would be 13% higher than the same period last year, and an interim dividend of $1.72, up from $1.50 this time last year.

Last August, Commonwealth Bank, Australia’s largest lender, announced a record $7 billion return to investors in buybacks and dividends.

Cash net profit after tax rose 19.8% to $8.65 billion in the year ended June 30, mainly due to lower loan impairment charges, which fell to $554 million from $2.52 billion last year.

Expenses were up 3.3% to $11.36 billion, higher than most analysts expected, driven by remediation charges and higher, and operating income rose only 1.7% to $24.1 billion, as it warned there would be "more headwinds that tailwinds" ahead.

CBA lost $14.8 billion in market value in a single session in November after a trading update warned of a sharp contraction in margins, which compare funding costs with what banks charge for loans.

As the Reserve Bank of Australia is expected to increase the official cash rate this year or early next year, analysts are warning that the industry-wide squeeze on net interest margins is likely to affect all the banks, with the mortgage market incredibly competitive and a slowing housing market boosting the fight for market share.

Investing.com’s gives an analysts’ consensus 12-month share price target of $93.67, below the current share price on Tuesday of just under $94.

Ten analysts have Sell recommendations on CBA, with 2 Neutral and 2 Buy ratings.

The S&P/ASX 200 staged a rally after midday AEDT, to close with a gain of more than 1%. Macquarie Group shares were up 4% after an operational briefing and insurer Suncorp rose 6% after a results announcement. US futures are slightly up.

Bank of America is warning that quantitative tightening is seen as the main risk for the US stock market, and strategists are maintaining a bearish S&P 500 target at 4600 by year-end. US and European stocks have made a rocky start to 2022 amid concerns that more aggressive monetary steps to tame inflation will hamper the recovery.

Macquarie Group posted a record December quarter underpinned by a jump in income in financial markets-related divisions, but did not give full-year earnings guidance.

The asset management and investment banking giant’s chief executive Shemara Wikramanayake said the record quarter was helped by improved market conditions. She said the group remained well positioned in the medium term, but was maintaining a “cautious stance” on the outlook. Macquarie ends its financial year on March 31.

Insurance-banking giant Suncorp on Tuesday declared its smallest dividend payout in almost five years following wild weather and investment market turmoil. The interim dividend payout of 23¢ came as Brisbane-based Suncorp said half-year profit fell 29% to $361 million.

Iron ore futures topped $US150 a tonne in Singapore.

A sell-off in the bond market gained pace into the afternoon as traders bet on interest rate hikes. The Australian 10-year yield was at 2.13%, the highest level since March 2020.

The Aussie dollar is at US71.11c against the US dollar.

Bitcoin is at $US44,235.

Gold is at $US1819.38 an ounce.

Brent crude oil is around $US93.00 a barrel.

WTI crude oil is up at $US91.44 a barrel.

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