Overshadowed by its $4.6 billion half-year profit, Commonwealth Bank of Australia (ASX: CBA) also delivered an important warning to bank shareholders.
An 8% increase in cash profit and a juicy 8% increase in the fully franked dividend at $1.98 per share may be the shining lights in the eyes of investors, but it was CEO Ian Narev's sobering warning that should scare investors tempted to buy shares in the big banks at their current prices.
"The volatility of the global economy continues to undermine confidence, particularly the impact of lower commodity prices on national revenue." He's referring to the sliding oil, coal, iron ore and copper prices, which rank as some of Australia's most valuable exports.
"Weak confidence is a significant economic threat. Business need the certainty to invest to create jobs, and households need a greater feeling of security," he added.
While a survey out today shows that consumer confidence jumped 8% last month and its highest level in a year, there remain a number of threats to our economy, including rising unemployment, slowing growth – which could lead to more rate cuts – and political uncertainty.
Should we see those threats arise, first in line to take a hit will be Australia's banks, with the big four majors Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank, National Australia Bank (ASX: NAB) and Westpac Banking Corp (ASX: WBC) at the head of that line.
Already overpriced by historical measures as well as by comparisons to their international competitors, the big four could see their earnings take a massive hit, which in turn would likely see dividends cut.
Should that come to pass, the rush for the exits may well be dramatic and panicked. That may well be the perfect time to dive into the banks, but for now I'm staying away.
