Is this CBA’s Last Great Dividend? — A View into the Future of Big Banks

In today’s Money Morning… CBA results tell you more about the property market than the bank itself… when this happens it’s either a top or the beginning of something big… salmon slap fight!… and more…

Don’t get me wrong, the Commonwealth Bank of Australia [ASX:CBA] results are strong given what the country went through in 2020.

And the CBA share price is charging up the charts.

You can see a comparison of the Big Four banks below:

Now CBA shares are clearly the preferred trade if you are into bank shares.

It’s survival of the fittest, or largest, I should say.

I’ve also said before that the Big Four are a protected species living on borrowed time.

But let’s dive into the latest CBA results to see how things are going for the country’s largest bank.

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CBA results tell you more about the property market than the bank itself

Here are the key numbers from the results:

• $1.50 dividend payable on 30 March (bit of a surprise)
• Cash profit of $3.9 billion down 10.8% (bit lower than expected)
• Statutory net profit down 20.8% to $4.9 billion
• Targeting a dividend payout ratio of between 70–80% for second dividend

But here’s the actually important bit via the Australian Financial Review:

‘The number and value of frozen home loans has plummeted more than 80 per cent from the mid-year peak in 2020 to just 25,000 loans worth $9 billion from 145,000 loans worth $51 billion as of June 30. Frozen SME loans also fell to just 2000 loans worth $300 million down from 67,000 loans worth $15.7 billion over the same period.’

And continuing:

‘CBA revealed strong growth in its key business areas of lending and deposits with a $4 billion increase in business lending at around three times system credit growth while home lending grew by more than $13 billion or 1.5 times system. Household deposits rose $23.2 billion or 1.1 times system.’

Which reveals what many property investors already know — you should have bought a house around the middle of last year if you had the spare cash.

It also matches up well, the deposit data that is, with the following chart:

Aussies started saving properly for the first time in what looks to be decades.

And much of the action in the property market flowed through CBA’s coffers.

Pre-lockdown, there was no real run on the banks, and CBA’s capital ratios remain strong.

I don’t think CBA is going to go down in a burning heap anytime soon, given its sheer size.

Rather, I think we will eventually see the Big Four whittled down to a Big Three — at which point the regulators will look to open things up.

From four to three, then expanding out to 15–20 neobanks.

Not all of these neobanks will succeed as the recent events around Xinja Bank show.

But make no mistake, the clock is ticking for the Big Four even if they appear to have the older, wealthier demographics of Australia cornered.

When this happens it’s either a top or the beginning of something big

Check out this little snap from Auckland:

Nothing says bubble or top like someone shelling out $40,000 for a billboard that has the bitcoin symbol, some rocket emojis, and the r/wallstreetbets mascot on it.

But the same people that are going on stock and crypto forums are the same people that the big banks will lose as customers.

And like a Southern European country with an aging population and an onerous welfare system and high taxes, the Big Four will eventually be starved of the necessary flesh blood.

Garbage in, garbage out.

Or more precisely, nothing (new customers) in, nothing (profits) out.

Ryan Dinse flagged a financial revolution taking place on Monday. And Tesla revealed its bitcoin investment on Tuesday.

For now, you have a range of BNPL stocks and promising fintechs as the investable bridge to the crypto future.

But we all know where this is heading — a world of techno-monetary competition.

Central bank backed digital currencies, corporate digital currencies, dwindling physical cash (fiat), legacy cash in a big bank, and then the most compelling option — true blue cryptocurrency.

I know where I’d rather have my money.

For a couple years now, I’ve been asked the same question by friends and family.

‘When should I buy bitcoin or crypto?’

It’s always the same answer.

‘Yesterday.’

For bonus comments on what’s happening with one of the most hyped-up BNPL stocks, please see the video below:

Regards,

Lachlann Tierney,
For Money Morning

Lachlann is also the Editorial Analyst at Exponential Stock Investor, a stock tipping newsletter that hunts for promising small-cap stocks. For information on how to subscribe and see what Lachy’s telling subscribers right now, please click here.