A few weeks ago the investment community learned of a rumour that Commonwealth Bank of Australia (ASX: CBA) was planning to cut a large number of jobs to save money.
If the bank were to cut jobs it would lower costs, probably lead to branch closures, slightly higher profit margins and a more efficient bank.
But, you can see how cutting jobs wouldn't go down well just before an election and just after the harrowing royal commission experience.
According to a report in the Australian Financial Review, CBA CEO Matt Comyn will say to staff that speculation of job cuts of up to 10,000 people is not true. Although a slow process of closing Commonwealth Bank branches is expected over the next few years.
CBA expects around 4,000 jobs to be reduced from its total job count just from asset sales. The bank has also been talking to the Financial Services Union according to the AFR.
But, judging by the bank's third quarter result, it could do with every bit of expense reduction it can.
Operating income dropped 4% and operating expenses increased 1%, which isn't a good combination.
CBA is finding it difficult to increase its net interest margin (NIM) with the intense competition from its peers Westpac Banking Corp (ASX: WBC) , Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB). Online-only competition and brokers make it even more difficult to maintain a high profit margin.
Foolish takeaway
With Australian house prices looking dicey I don't think a CBA job cut plan going ahead or not changes whether CBA is a buy or not for me.
CBA is currently trading at 14x FY19's estimated earnings with a grossed-up dividend yield of 8.4%. In the very-short-term I wouldn't want to buy CBA shares unless they were under $70, but over the medium-term the share price could fall lower than that if things went pear-shaped.
