CBA warns of weak profit

Commonwealth Bank chairman John Ralph dampened market expectations about the bank's earnings growth on Friday, saying that weak investment markets and one-off expenses would result in only modest growth for full-year profits. CBA's share price slumped more than 4 per cent after the forecast by $1.54 to $28.86, infecting the banking sector, with the ANZ and NAB falling also. Only Westpac went against the trend, rising six cents to $14.26.

Mr Ralph said the bank's earnings growth would be “modest” due to the uncertain global economic outlook. First quarter investment returns were poor and thus returns on shareholder funds in the life insurance sector have been well below expectations, he said. A large portion of CBA's funds management plus life insurance were inherited from Colonial, and CBA is still funding a $120 million restructuring.

CBA is more reliant on funds management than ANZ or Westpac, thus its profits are potentially more volatile. In 2002, funds management and life insurance made up 16 per cent of CBA's $2.665 billion net profit.
Analysts were already cautious about CBA's outlook after MD David Murray recently warned about weaker home-lending conditions and lower returns on bank stocks. They had been predicting a profit of over $2.8 billion, but are now forecasting zero to 5 per cent growth rather than double-digit figures.