CBA share price slips as analyst warns of $2 billion Klarna scratch

The CBA share price is down today amid news of a massive potential writedown on the bank’s stake in a global payments provider.

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Key points

  • A top broker says CBA may be forced to take a $2 billion writedown on its Klarna stake in FY22
  • CBA bought a stake in Klarna in 2019, then upped its holding in 2020
  • CBA's stake in Klarna has reportedly declined in value from $2.48 billion in the first half to $400 million at 30 June 

The Commonwealth Bank of Australia (ASX: CBA) share price is down 0.39% so far today to trade at $91.09.

The share price slippage comes amid one broker’s speculation that CBA may have to write down a $2 billion loss relating to its investment in global payments provider, Klarna.

What’s happening with CBA’s stake in Klarna?

First, a little background on CBA and Klarna.

CBA purchased a US$100 million stake in Klarna in 2019, seeking to capitalise on the buy now, pay later (BNPL) craze at the time.

It then lifted its stake in January 2020 by another US$200 million.

As we reported then, this gave CBA about a 5% stake in Klarna. The bank also became a 50% owner of Klarna’s Australia and New Zealand divisions.

Klarna officially launched in Australia on 30 January 2021 and in New Zealand on 4 May 2021.

Now, on to today’s news.

According to reporting in the Australian Financial Review (AFR) today, Morgan Stanley analyst Richard Wiles says CBA may be forced to take a $2 billion writedown on its Klarna stake in FY22.

What did Morgan Stanley say?

According to the article:

The analyst assumes an 85 per cent haircut in the Klarna stake’s value from $2.48 billion in the first half to just $400 million at the end of FY 2022. The potential writedown would reduce the book value by about $1.20 per share or 2.5 per cent.

Any writedown would be booked through CBA’s reserves not its income statement, Morgan Stanley said.

The broker quoted a Financial Times report from July 2 that said Klarna’s valuation had fallen from $US46 billion to $US6.5 billion.

CBA share price summary

The big four ASX bank share has lost 11% of its value over the past month.

The CBA share price has been dragged down by investors’ concerns over rising inflation and interest rates.

CBA will report its full-year results for FY22 during the upcoming earnings season on 10 August.

Motley Fool contributor Bronwyn Allen has positions in Commonwealth Bank of Australia. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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