Why did the CBA share price just sink almost 6%?

Investors appear to have spotted something in CBA's results and have been hitting the sell button in response…

| More on:
A man holds his head in his hands, despairing at the bad result he's reading on his computer.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • CBA shares are having a tough time on Wednesday
  • This follows the release of the bank's half year results
  • Although its result was strong, investors appear to have spotted something of concern

The Commonwealth Bank of Australia (ASX: CBA) share price took a beating in early trade.

At one stage, the banking giant's shares were down as much as 5.5% to $103.06.

The CBA share price has recovered a touch since then but remains 3% lower at $106.07.

Why is the CBA share price sinking?

Investors have been selling down the shares of Australia's largest bank following the release of its half year results.

As a reminder, for the six months ended 31 December, CBA delivered a 12% increase in operating income to $13,593 million and a 9% lift in cash earnings to $5,153 million. This was driven largely by volume growth in core products and a recovery in its net interest margin.

The CBA board elected to increase its interim dividend by 20% year over year to a fully franked $2.10 per share. But the returns won't stop there. CBA has increased its ongoing share buy back by $1 billion.

Broker reaction

Goldman Sachs has taken a look at the result and given its verdict. It notes that its earnings were stronger than it was expecting. The broker commented:

CBA's 1H23 cash earnings (company basis) from continued operations grew by 9% on pcp to A$5,153 mn, and was 1% ahead of our expectations. The beat was driven by better-than-expected net interest income and lower expenses, partially offset by lower non-interest income and higher BDDs, which translated to a 1H23 PPOP that was up 18% on pcp and 1% higher than expectations (in line revenues, lower operating expenses).

So why is the CBA share price falling? This could be due to concerns that the bank's net interest margin has already peaked. If this is the case, it has peaked well ahead of expectations. Goldman adds:

Disclosure by CBA suggests that its monthly NIM peaked around the middle of 1H23, which likely implies our 1H24 peak half-year NIM forecast is optimistic.

It looks as though the market may now be revising down its earnings estimates and valuation for the bank in response to this, putting pressure on its shares.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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.

More on Bank Shares

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Bank Shares

How CBA shares are diversifying outside of the great Aussie dream

Commonwealth Bank of Australia is looking for ways to make money beyond home buyers.

Read more »

ecommerce asx shares represented by santa doing online shopping on laptop
Bank Shares

Can Bank of Queensland shares reach $6 by Christmas?

Is it possible for this regional bank to deliver strong returns?

Read more »

A man leans forward over his phone in his hands with a satisfied smirk on his face although he has just learned something pleasing or received some satisfying news.
Dividend Investing

Profit up 26% + 7% yield + buyback. Interested in this ASX 200 dividend stock?

One expert says these shares are going for 'cheap', even though the future looks pretty good for the business.

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

ANZ stock: Can it break out of its multi-year rut?

Believe it or not, ANZ shares haven't moved for 18 years.

Read more »

A man in a suit smiles at the yellow piggy bank he holds in his hand.
Bank Shares

Could ANZ shares offer big returns for investors in 2024?

This banking giant has beaten the market in 2023. Can it do the same next year?

Read more »

a young boy dressed in a business suit and wearing thick black glasses peers straight ahead while sitting at a heavy wooden desk with an old-fashioned calculator and adding machine while holding a pen over a large ledger book.
Bank Shares

Would Warren Buffett buy ASX 200 bank shares right now?

Australian investors love ASX bank shares. But would Warren Buffett?

Read more »

Bank building with the word bank in gold.
Bank Shares

These 3 ASX 200 bank shares grabbed our headline news this week. Here's why

The ASX 200 banks saw management changes, share buybacks and bullish broker coverage over the week.

Read more »

Woman in striped long sleeved top holds both hands up and looks to one side signifying a comparison between two ASX shares
Bank Shares

CBA vs ANZ shares: Which to buy and which to sell?

Which big four bank is the better buy right now?

Read more »