Is Commonwealth Bank of Australia at risk of a sell-off at February’s profit result?

Sentiment towards Commonwealth Bank of Australia (ASX: CBA) has improved since its shares hit a near one-year low of $73.24 in September 2017 but Australia’s largest home loan lender could be facing a “buy the rumour, sell the fact” situation next month.

The improving sentiment is driven in part by upbeat trading updates that are fuelling expectations of a good half year result in February.

There’s no reason to think management won’t be able to deliver a decent report card but that may not be enough to keep shareholders onside and may even give some an excuse to take profit after its near 9% rally in the past four months.

This is because the bank probably won’t be able to give investors anything to really look forward to. The good news is well flagged but the growing headwinds are probably not fully appreciated by investors.

For instance, Morgan Stanley believes that investors have “lofty expectations” for CBA although its domestic home loan and household deposit growth rates are tracking below system and the broker’s forecasts.

This is why the market will be keenly watching the bank’s reported net interest margin to see if it can continue to expand this key measure.

The only real way it can increase margins in this stage of the cycle is to cut costs. Banks have already been doing a lot of that and it remains to be seen how much more costs it can take out of its business.

Another worry facing CBA’s shareholders is the increasing level of household debt, which is now hitting 200% of disposable income, up from 194%, as the Australian Bureau of Statistics has included the debt of Self-Managed Super Funds (SMSFs).

We are unlikely to see much in the way of income growth, particularly for CBA as it loses market share in home loans.

The other Big Banks, like Australian and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC), won’t have much more of a rosier time either as the sector will have to contend with the impending Royal Commission into the sector, but I think CBA is more at risk as it continues to suffer from the fallout of the AUSTRAC scandal.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, National Australia Bank Limited, and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank 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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