CBA profit leaps to record

Commonwealth Bank of Australia, the nation's biggest mortgage lender, said first-half profit surged 50 per cent to a record as rising consumer confidence spurred homebuyers and it reined in expenses.

The bank's stock had its biggest gain in almost two years.

Commonwealth stock rocketed A$1.33 or almost 4 per cent to A$35.76.

Net income rose to A$1.86 billion ($2.04 billion), or A$1.42 a share, in the six months ended December 31, from A$1.24 billion, or 96Ac a year earlier, the Sydney-based bank said. Its stock climbed as much as 3 per cent to a record after chief executive David Murray, 55, raised his earnings forecast.

Murray is cutting jobs, refurbishing branches and training workers to sell more loans and investment products as part of a three-year, A$1.5 billion programme to reduce costs and boost revenue.

Australia's second-biggest bank increased mortgages at three times the pace of rival National Australia Bank and bolstered funds under management as Australia's benchmark stock index had its biggest six-month gain in 11 years.

The result beat a A$1.65 billion median estimate of nine analysts surveyed by Bloomberg News.

Murray increased home lending by 10 per cent during the half to A$134 billion. Australian consumer confidence in February remained close to its highest in almost 11 years, spurred by higher employment and rising share prices.

"We have seen productivity improvements in all businesses, driven by increasing revenue and flat costs," Murray told reporters in Sydney.

The bank cut expenditure on its restructuring programme by 95 per cent from a year earlier to A$19 million. It expects the programme, which targets the shedding of 3700 jobs, or 10 per cent of workers, to deliver annual net benefits of more than A$620 million in 2005 and at least A$900 million in 2006.

It has spent A$889 million so far on the plan, which is set to end in June 2006.

"People are going to be surprised by the strong level of industry growth in loans," Atul Lele, who helps manage A$500 million at White Funds Management in Sydney, said before the announcement. "They've also been quite successful in stripping costs out of the bank."

Nevertheless, the banking net interest margin, which measures the profitability of lending, fell 16 basis points from a year earlier to 2.44 per cent as competition, including that from overseas rivals ING and HBOS, intensified.

Commonwealth, which boosted managed funds by 11 per cent to A$117.4 billion from a year earlier, is the best performer among Australia's five biggest bank stocks this year as brokerages boosted earnings forecasts because of rising stock prices.

Australia's S&P/ASX 200 Index gained 3.1 per cent since December 31.

Commonwealth shares have risen more than 10 per cent in 2005, outpacing a 3.6 per cent gain at National Australia, a 0.9 per cent increase at ANZ Banking Group and a 0.1 per cent decline at Westpac.

"The outlook for lenders has been talked down of late, and what we're seeing with this result is that the sentiments may have been overplayed," said Hans Kunnen, who helps manage the equivalent of US$15 billion, including bank stocks, at Colonial First State Investments in Sydney.

Profit from banking rose 10 per cent to A$1.43 billion and earnings from funds management jumped more than a third to A$170 million.Net interest income increased 10 per cent to A$2.93 billion and non-interest income, including from fees and charges, rose 3 per cent to A$1.41 billion.

Commonwealth Bank will pay a first-half dividend of 85Ac a share, up from 79Ac a year earlier.

- BLOOMBERG