Why CBA sank 10%+ in FY26: margin squeeze and mortgage war

Capital management disappointed the market. CBA paid a fully franked final dividend of $2.25 per share, flat on the prior corresponding period, and did not announce a buyback. Some analysts had expected a $1 billion on-market buyback given CBA's common equity tier 1 ratio of 12.3%, which sits above the bank's target range.

CBA's valuation relative to peers remains a point of contention. The stock trades at roughly 22 times forward earnings, a premium of about 40% to Westpac and NAB. That multiple compressed from 26 times at the start of FY26 but still leaves CBA priced for a margin recovery that has not materialised. "The premium is hard to justify when the earnings trajectory is flat to down," one Sydney-based fund manager said.

The mortgage war shows no sign of easing. Fixed-rate loans below 6% have reappeared from several lenders, and CBA's variable-rate discounts are at their widest since 2021. Deposit competition from term deposits and savings accounts keeps funding costs sticky. The next half-year result, due in August, will show whether the margin has stabilised or compressed further.

CBA's cost-out program, Project Unite, targets $300 million in annual savings by FY28. The bank said it is on track to deliver $150 million in FY27. Those savings would help offset revenue pressure but do not change the structural challenge: CBA needs either a housing credit rebound or a sustained period of stable funding costs to restore earnings growth. Neither looks imminent.