Alongside the hit from compensation, CBA said operating income was down 4 per cent, as expenses rose 1 per cent, excluding notable items.
The cost of impaired loans also edged up, and more households had fallen behind on their loan payments, amid soft wage growth and “cost of living challenges” in the outer suburbs of Perth, Melbourne and Sydney.
Excluding notable items, CBA’s profits were down 9 per cent. It shares fell 2.7 per cent to $73.42, as major rivals also lost ground.
Angus Gluskie, managing director of White Funds Management, highlighted the weaker trends in its core banking operations, where fee revenue fell and interest income was unchanged, after accounting for the fact there were fewer days in the quarter.
“I think the general trends were poor. While they did have a level of growth in volumes, their interest income was effectively flat,” said Mr Gluskie, whose $800 million fund is invested in CBA.
UBS analyst Jonathan Mott said CBA’s numbers appeared “weak across the board,” in line with the industry-wide trends of soft revenue, rising costs, and a growing number of loans going sour, which featured in recent results of National Australia Bank, Westpac and ANZ Bank.
Mr Mott said that although CBA was taking steps to restructure, “with significant headwinds facing the banks it is difficult to see much upside.”
CBA chief executive Matt Comyn acknowledged the weakness, but pointed to growth that included a 2.5 per cent gain in its mortgage book over the quarter, a 2.8 per cent rise in household deposits, and a 2.3 increase in business credit.
“While headline profitability was impacted by higher remediation provisions, our sound business fundamentals ensure we remain well-placed in a challenging environment, highlighted in this quarter by volume growth in our core businesses, a strong capital position and continued balance sheet strength,” Mr Comyn said.
As banks face pressure to cut their costs, Mr Comyn said lowering CBA’s cost base would be “critical,” but it was more of a “medium term ambition,” rather than a short term focus.
Bell Potter analyst TS Lim said the slump was worse than expected, mainly due to the provisions for remediation. “I think they are accelerating the process of putting out provisions,” Mr Lim said.
Chief investment officer at Atlas Funds Management, Hugh Dive, also said the bank appeared to be taking “some very large provisions,” which could be a “strategic” move.
CLSA analyst Brian Johnson said it was a “very disappointing” result that had shown the “headwinds” facing the banking giant.
The customer remediation charges for the quarter were dominated by a $334 million set aside to cover costs from its “aligned” financial planners — those who operated under the bank’s licence but were not employees.
The bank also said 3 per cent of its mortgage customers were in “negative equity”— where the outstanding balance exceeds the value of the house.
Clancy Yeates is a business reporter.