Why is the Commonwealth Bank (ASX:CBA) share price down 3% today?

Why are CBA shares dropping so heavily today?
The post Why is the Commonwealth Bank (ASX:CBA) share price down 3% today? appeared first on The Motley Fool Australia. –

The S&P/ASX 200 Index (ASX: XJO) is having a pretty bleak day this Tuesday. At the time of writing, the ASX 200 is currently down a little more than 1%, dropping to 7,506 points. However, one major ASX blue chip share is faring far worse today. That would be the Commonwealth Bank of Australia (ASX: CBA) share price.

CBA shares are currently down a nasty 3.28% so far today to $99.18. That represents a pretty dramatic drop for CBA, with the ASX 200’s largest bank share hitting a new all-time high of $109.03 just last week. That means that CBA shares are currently down around 9% from those highs today.

It’s as though all of the euphoria that accompanied CBA’s earnings report last week has all but evaporated. CBA shares were lit on fire last week following the bank’s earnings report. Investors were very excited when the bank announced a 17% dividend increase for FY21. As well as a new $6 billion share buyback program. Well, those shares CommBank wants to buy back are certainly a lot cheaper today than they were last week.

So why this big drop for the CBA share price?

Well, there have been a few developments in recent days that have arguably not been great for CommBank.

Firstly, some brokers started to describe CBA as overvalued following its big jump last week. As my Fool colleague James covered on Sunday, broker Credit Suisse downgraded Commonwealth Bank to ‘underperform’ following its earnings report, with a share price target of $95 a share.

Secondly, my Fool colleague Bernd covered how CBA is facing increasing competition from smaller, digital lenders in the profit-laden home loan mortgage market. Bernd analysed a report that looked at how emerging fintech companies could be “nibbling away at the edges of [CBA’s] lucrative mortgage market”.

CBA remains dominant in the Australian mortgages market. But rising competition is usually not good news for a market leader.

Finally, and also as The Motley Fool covered at length, CBA is also facing a potentially embarrassing situation in regards to its Federal Court-imposed $7 million fine earlier this year. As Tony covered yesterday, the Court has just ordered CBA to publish “both a written and audio-visual mea culpa” on both its website and newsroom that it had intentionally misled customers when it overcharged interest on overdraft accounts. 

This notice is to be titled ‘Notification of misconduct by CBA’ and will be live for at least 90 days. Not exactly a proud moment for the bank, one could say.

So it’s likely to be a combination of these factors, together with the general market malaise we see today, that is pulling the CBA share price sharply lower this Tuesday.

At the current CBA share price, this ASX bank has a market capitalisation of $181.92 billion, a price-to-earnings (P/E) ratio of 21.07, and a trailing dividend yield of 3.53%.

The post Why is the Commonwealth Bank (ASX:CBA) share price down 3% today? appeared first on The Motley Fool Australia.

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More reading

CommBank (ASX:CBA) forced to publish it misled customers
CBA (ASX:CBA) share price slides as the bank plans digital home loans
With a dual listing, Square could boot CBA (ASX:CBA) from the ASX 200 top spot
ASX 200 Weekly Wrap: New records just keep coming for the ASX 200

The macro environment is very beneficial for ASX bank shares: expert

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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