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Why Commonwealth Bank just warned of a $169 million profit hit

The Commonwealth Bank of Australia (ASX: CBA) share price shrugged off news today that the bank will take a $169 million non-cash profit hit for the interim half-year profit reporting period ending December 31 2018.

According to the bank the losses comprise of $74 million (post tax) related to costs and losses on disposals of businesses around the sale of its Colonial First State Global Asset Management (CFSGAM) business and its CommInsure Life business.

The second part of the total loss is related to hedging and IFRS (accounting standards) losses of $91 million post tax mainly related to the depreciation of the Australian dollar versus the New Zealand dollar.

Although a non-cash accounting loss of $169 million might seem a lot on first blush, in the context of CBA’s $9,200 million cash profit over FY 2018 investors can see it’s a small amount.

This explains why the CBA share price is higher today, with greater problems for the bank to negotiate including falling Australian house prices and rising costs as a result of The Royal Commission.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Scott Phillips.

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