Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy? It announced its third quarter update yesterday.
All four major ASX banks have now announced their initial coronavirus credit provisions. National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Group (ASX: WBC) decided their provisions in their recent half-year results.
Its March 2020 quarter showed cash profit was down 44% compared to the first half of FY20's quarterly average. It announced an additional credit provision of $1.5 billion relating to the coronavirus.
Both the statutory net profit after tax and cash profit came in at $1.3 billion. The CBA share price rose by almost 2% on Wednesday.
The major ASX 200 bank also announced that it had agreed to sell a 55% stake in Colonial First State (CFS) for $1.7 billion. CBA will retain the other 45%. The sale price represents a multiple of 15.5x CFS' pro forma net profit after tax (NPAT) of approximately $200 million.
CBA said that it will make an estimated $1.5 billion gain on the sale. The transaction is expected to deliver an increase of around $1.4 billion to $1.9 billion of CET1 capital, resulting in a pro forma lifting of the group CET1 ratio of 30 to 40 basis points.
Is the CBA share price a buy right now?
Even after yesterday's rise the CBA share price is still down 30% from the level it was trading at on 21 February 2020.
If the bank can continue to make over $1 billion of profit each quarter then it could continue to be a strong bank with a decent dividend, even if the dividend is reduced somewhat this year.
With profit down by more than a third I think it's pretty obvious that the CBA dividend will probably be cut by at least a third as well. Unless the economy suddenly and miraculously recovers over the next few weeks. This seems unlikely.
It's very hard to say what the CBA earnings will do over the next 12 months. It's also hard to estimate what the dividend and share price will do. But profits are likely to be lower with the RBA interest rate so low. I can think of plenty of ASX shares I'd rather buy first.
