Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy?
Over the past week the CBA share price has fallen by 2.5% in response to the bank's third quarter trading update.
If you didn't catch it, CBA said that its cash net profit after tax (NPAT) fell 28% to $1.7 billion, but excluding notable items cash NPAT dropped 9%. Third quarter statutory NPAT was $1.75 billion.
The worst part of the update was the additional $714 million in pre-tax customer remediation related to the royal commission. To date, CBA said that total remediation repayments and provisions has hit $2.17 billion, but it hasn't reached the end of the process yet.
The headline profit was down, but there were some individual things that didn't build much confidence for me. Operating income was 4% lower but operating expenses (excluding significant items) was up 1%. This isn't a good combination.
Another thing that worries me is that constantly-growing consumer arrears of 90+ days for Australian home loans, at March 2017 the percent of Australiam mortgages in 90+ day arrears was 0.57%, at March 2018 it was 0.65% and at March 2019 it was 0.71%.
Troublesome and impaired assets, which includes corporate loans, are also growing. March 2018 showed $6.6 billion of troubled and impaired assets, December 2018 showed $6.7 billion of troubled and impaired assets and March 2019 had $7.2 billion of troubled and impaired assets. That's another trend which doesn't look so good.
When you factor in the falling Australian house prices, the additional lending requirements and the required capital requirements, banks like CBA don't look like they will return to good growth any time soon. I don't think National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Group (ASX: WBC) look any better.
Investing in a cyclical business at the end of the cycle doesn't seem like a smart idea to me.
Foolish takeaway
CBA is currently trading at under 14x FY20's estimated earnings with a grossed-up dividend yield of 8.5%. I'd rather invest in an ASX index rather than CBA shares to mitigate individual company risk today due to the heightened risks surrounding the Australian economy and house prices.
