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$2bn fund valuation fall

  1. jollyroger1

    1,155 Posts.

    $2bn fund valuation fall
    By Bruce Brammall
    February 10, 2003
    THE boss of the Commonwealth Bank, David Murray, has been tipped to announce a writedown in the value of its Colonial First State business by as much as $2 billion.

    Australia's biggest retail bank will reveal a flat first half profit in Sydney on Wednesday.

    ComBank shocked the market in November when it warned it would win only "modest" growth in its net profit on a cash basis for the six months to December 31.

    At the time the bank blamed poor investment returns from depressed markets, a situation that has not improved since the announcement.

    Its previous first half net was $1.19 billion and its bottom line profit was a record $1.20 billion.

    J P Morgan banking analyst Brian Johnson yesterday said that "it would be rather adventurous not to expect a fairly significant writedown in (Wednesday's) result" with most coming from its Colonial FS business, presently valued at $8.6 billion.

    "The wealth management business (of CFS) is carried at $4.8 billion . . . however, the net tangible assets is about $200 million," he told Nine's Business Sunday.

    "So from about $200 (million to $4.8 billion is the value of business they have't yet generated, which is where the actuaries can play around with the numbers."

    Mr Johnson earlier forecast a net profit of $1.17 billion.

    He also expects the bank would launch its much anticipated $500 million share buyback program, announced last August, on Wednesday.

    Another analyst said he believed expectations of a Colonial writedown had been factored into ComBank's share price, which has been falling since June last year when it was near record highs of nearly $35.

    Last Friday ComBank shares closed 50c higher at $26.47.

    But the writedown would probably not have much impact on the bank's capital position or its ability to pay dividends, he added.

    As with its rivals, ComBank has been pinning its hopes on an uplift in business banking this year to help stave off the effects of an expected slowdown in home loans.

    Investors will also be hoping for an update on CBA's changes which claimed about 1500 jobs and cost the bank $120 million in redundancies.

    Macquarie Equities said in a recent report CBA investment returns could be hindered by its internal changes, unstable management and key business units which were "in flux".

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