Housing boom pops Aussie lender’s bubbly multiple

The Sydney Opera House and city centre skyline are seen in Sydney, Australia, February 28, 2020. REUTERS/Loren Elliott/File Photo - RC208P95C6QA

HONG KONG, Nov 17 (Reuters Breakingviews) - The more than A$15 billion ($11 billion) hit to Commonwealth Bank of Australia’s (CBA.AX) market value on Thursday seems unjustified on first look. The country’s largest lender posted first-quarter earnings of A$2.2 billion, maintaining an annualised return on equity above 11% that bests its major rivals. Trouble is, the results show its huge premium to peers is unsustainable.

Shares in the bank run by Matt Comyn closed on Wednesday at more than 2.4 times book value for the next 12 months, per Refinitiv. National Australia Bank (NAB.AX), its closest competitor, trades at just under 1.5 times book, even though its ROE for its financial year to the end of September was 10.7%.

Shareholders had given Commonwealth credit for growing quicker than the market. But its all-important net interest margin fell by around 0.1 percentage points in the quarter, Citi estimates, as rampant competition in the heady mortgage market took its toll. If the top dog can be hobbled, too, it doesn’t deserve to be so far ahead of the pack. (By Antony Currie)

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Editing by Robyn Mak and Katrina Hamlin

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