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.
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.