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Here’s How Much the Bank Levy Will Cost Commonwealth Bank of Australia

The Commonwealth Bank of Australia (ASX: CBA) share price has edged slightly higher today after the bank updated the market on how it thinks it will be impacted by the Federal Government’s bank levy.

So far, the Commonwealth Bank share price has risen 0.1% to $81.36. They’re trading 1.2% lower since the beginning of the year with most of the damage coming in the past month – they’re down more than 5% over that period.

In its update, which was released to investors at 4:30pm on Monday, the bank said it estimated the levy will amount to approximately $315 million per annum, or $220 million after tax. That is based on limited information on which to base Commonwealth Bank’s calculations, and based on the group’s current financial position.

To provide some context, Commonwealth Bank reported a net profit after tax of $9.247 billion for the 2016 financial year. Hence, the after-tax charge anticipated by Commonwealth Bank’s management amounts to around 2.4% of the group’s profit. It will add to the $3.6 billion in tax the bank paid during 2016.

Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd. (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Macquarie Group Ltd (ASX: MQG) will also be impacted by the levy.

What Commonwealth Bank of Australia’s shareholders may have also noticed was this (my emphasis):

“Commonwealth Bank has consistently returned on average 75% of profits as dividends to more than 800,000 shareholders each year. In addition, millions of Australians have also benefitted through their superannuation funds. The remainder of your company’s profits are reinvested for future growth, so that we can serve our customers better, while continuing to deliver for shareholders and the broader Australian economy.

We are deeply concerned the new levy undermines our ability to achieve these goals.”

Westpac’s chairman shared a similar sentiment, saying:

“No company can simply ‘absorb’ a new tax, so consideration is being given to how we will manage this significant impost on the bank. We plan to consult with stakeholders, including shareholders, on the Levy.”

If Commonwealth Bank was to decide to pass the cost of the levy onto shareholders, the $220 million impact has the potential to lower dividends by around 13 cents per share. That said, it does not appear as though the bank has reached a decision on how it will absorb or pass on the additional tax yet, although it seems unlikely shareholders would wear the full brunt of it (if any).

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited, Telstra Limited, and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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