Commonwealth Bank of Australia (ASX: CBA) has today released its unaudited results for the three months ending 31 March 2014, which revealed a 16% rise in quarterly cash earnings. The bank's shares rose to a record high of $80.67, which was 1% above its previous closing price. Here are three things to take away from its report:
- Cash earnings came in at roughly $2.2 billion which compares to the $1.9 billion recorded in the same quarter last year. While Commonwealth Bank reported a monstrous $4.3 billion cash profit for its first half operations, it is certainly on track to deliver a record annual cash profit greater than $8.6 billion.
- The result was largely driven by improvements in cost management and a further fall in bad debt charges. Credit quality remained stable "with impaired assets unchanged at $3.9 billion" while its expense for bad debt charges was just $204 million. This compares to $255 million in the prior corresponding period.
- Commonwealth Bank continued to benefit from the low interest rate environment which saw moderate mortgage growth compared to the prior year. This was partially offset as more and more customers took advantage of the lower rates to repay their debts.
Commonwealth Bank of Australia isn't the only major bank firing on all cylinders. National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) have also recently reported bumper half-year profits which could well see the banks' combined annual profit hit $30 billion dollars for the first time in history.
A much better bet than the big four banks
Although the banks are quality companies, it seems that all of the good news is already well and truly priced into the shares leaving little upside potential for market-beating gains. Further, interest rates will inevitably rise in the near future which will result in higher bad debt charges, putting pressure on earnings.
