CBA tumbled 9% in two days. Here's everything you need to know.
CBA crashed 9% in two days, its worst selloff since 2021. Brokers say the valuation party is over as costs surge and margins compress.
.jpg)
Source: Shutterstock
Mentioned
KEY POINTS
- CBA's 6.2% Tuesday decline marked its worst one-day selloff since November 2021, triggered by a 6.1% quarterly cost increase and a CET1 ratio that fell to 11.75% versus consensus of 12.3%.
- All three major brokers maintain negative ratings with price targets between $96-$127, citing excessive valuation at 27x earnings compared to flat profit growth and persistent margin pressure into FY26.
- CBA has surrendered its twelve-month performance lead to all three Big Four peers, with Westpac, ANZ and NAB now outperforming on the back of aggressive cost-out programs and efficiency initiatives.
Commonwealth Bank (ASX: CBA) suffered a rare 6.2% selloff on Tuesday, despite reporting a seemingly innocent first quarter trading update. This marked CBA's worst one-day decline since November 2021, when the stock dropped 8.0% after its 1Q22 trading update revealed "considerably lower" net interest margins as customers switched to lower margin fixed rate loans.
Rather than bouncing back, the stock logged another 3.0% dip on Wednesday to a fresh seven-month low of $158.38. Here's what's driving the decline and why it matters.
1Q26 trading update
The September quarter numbers painted a picture of steady but unspectacular performance:
Cash NPAT up 2.0% year-on-year but down 3.7% quarter-on-quarter to $2.6 billion
Cash NPAT was ~0.8% above consensus estimates
Net interest margin reduced due to mix effects of strong growth in lower yielding liquid assets, deposit switching, competition and the lower cash rate environment
Net interest income up 2.7% QoQ, driven by deposit and lending volume growth, plus an additional 1.5 days in the quarter
Loan impairment charge was $220 million
CET1 ratio down 54 bps to 11.75%
UBS summed it up as: "The headline figures indicate that CBA is delivering results broadly in line with expectations ... The 6.1% quarter-on-quarter increase in costs is somewhat surprising, even excluding notable items, as is the decline in the CET1 ratio to 11.75%, compared to the 1H26 consensus estimate of 12.3%."
In essence, this was a relatively orderly result. But slightly weaker margins, regulatory capital and costs finally triggered a sharp selloff in the 'world's most expensive bank', which was trading at a price-to-earnings ratio of 29x prior to the results announcement.
Broker response
Most brokers view CBA as overvalued and facing limited earnings growth potential. They expect margin pressure to persist into FY26 amid deposit mix headwinds, competition, and lower rates, while cost inflation from technology and vendors remains a major concern.
Macquarie retained Underperform, target $106. Headline miss driven by remediation charges, core trends steady but margins and costs pressured by tech inflation, with valuation seen as excessive.
JPMorgan retained Underweight, raised target from $124 to $127. Results met expectations but costs surprised, competition pressure justified, and valuation seen as inconsistent with modest profit growth.
Morgans retained Sell, lowered target from $100.85 to $96.07. Earnings growth missed expectations, costs and impairments offset revenue gains, and NIM pressure and structural cost escalation seen as ongoing.
Not the first time
This isn't CBA's first rodeo. Just three months ago, the bank faced a similar selloff following its FY25 result, with the stock down 5.4% despite numbers that were broadly in-line with forecasts. The selloff reflected stretched valuations and a lack of earnings upgrades. Key themes from that result included:
Revenue and net profit strength was underpinned by trading income, provision releases and a lower tax rate, which masked persistent cost growth and margin pressure.
Management flagged ongoing deposit competition, fading hedge benefits, and the impact of rate cuts in FY26.
Heavy investment in AI and technology was framed as critical for long-term competitiveness, but wage inflation, vendor costs, and opex continued to weigh on the cost outlook.
Competitive positioning also came into focus, with peers making gains in mortgages, transaction accounts, and youth banking.
Interestingly, CBA managed to recoup most of that selloff over the next six sessions. Whether history repeats itself remains to be seen.
Food for thought #1: Resource rotation
A few months ago, I wrote a piece on how CBA and BHP often move in opposite directions. When CBA tumbled 2.5% on its lacklustre 1H25 result (21 Feb), BHP rallied 2.7% despite no major company announcements and relatively flat iron ore prices. The same dynamic played out on 23 April, when CBA dropped 2.5% following an unprecedented 5% rally to record highs in the previous session. Once again, BHP climbed 3.3% without any news or dramatic changes in commodity prices.
Looking at CBA declines of 2% or more dating back to August 2024, a pretty clear pattern emerges: when CBA falls sharply, BHP often rallies 3-4%.
Source: Author's own research
But BHP is now at an inflection point where iron ore prices have defied all odds to continue trading around US$103 a tonne and copper price have soared 24% year-to-date to record highs over US$5.00/lb. This has helped BHP shares gain 15% year-to-date.
Morgan Stanley says if spot prices continue to hold at current levels, you could see some material upgrades to BHP (and peers) dividend and free cash flow assumptions for FY26.
Ticker | Company | FY26 FCF yield (base) | FY26 FCF yield (spot) |
|---|---|---|---|
BHP | BHP | 4.4% | 5.8% |
RIO | Rio Tinto | 3.2% | 4.6% |
FMG | Fortescue | 5.0% | 8.6% |
Source: Morgan Stanley Research, October 2025
Ticker | Company | FY26 dividend yield (base) | FY26 dividend yield (spot) |
|---|---|---|---|
BHP | BHP | 3.9% | 4.6% |
RIO | Rio Tinto | 4.9% | 5.7% |
FMG | Fortescue | 5.4% | 8.2% |
Source: Morgan Stanley Research, October 2025
The bottom line is that the market's second largest company is starting to see some positive shifts, at a time when CBA continues to post flat growth while trading at a price-to-earnings of ~27x and a dividend yield of just 2.90%.
Food for thought #2: Selloffs are rare
Since 2008, CBA has experienced a selloff of 6% or more just 18 times, 15 of which occurred during the 2008 Global Financial Crisis and 2020 pandemic.
There is no historic precedent for what is going on right now. Prior to the GFC, CBA was trading at a PE of ~7, and troughed at 3-4x. During the pandemic, CBA's PE dipped from 13x to a low of 8x.
During the 8.0% selloff on 17 November 2021, CBA was trading at a PE of 15-16x, and the stock traded mostly sideways for the next 3-4 months before eventually trending higher. Meanwhile the most recent selloff (-6.2% during Liberation Day) saw the stock recover in a V-shape fashion.
CBA's most recent selloffs and post-dip performance (Source: Author's own research)
Westpac, ANZ and NAB on the rise
In the past twelve months (and most other time frames), CBA was the best performing Big Four Bank. But its leadership started to erode after late-June and after the last two days, is now the worst performing Big Four Bank over the past twelve months.
In terms of twelve month performances, Westpac was the first to overtake CBA back in August, where its Q3 result highlighted stronger-than-expected margins, low credit impairments and optimism surrounding its UNITE program.
ANZ overtook CBA in October, supported by its 2030 Strategy Update (14-Oct), with management presenting a detailed cost and efficiency program alongside ambitious revenue growth targets. The most widely supported element was the cost-out program, with the $800 million FY26 savings and increased Suncorp Bank synergy targets.
NAB has yet to announce anything as exciting as Westpac and ANZ, but still managed to overtake CBA today.
CBA (yellow) vs. Westpac (red), ANZ (blue) and NAB (green) | Source: TradingView
This could signal a rotation from CBA to the other majors, most of which have ambitious plans in place to drive efficiencies and competitiveness.
Everyone has been waiting for CBA to stage a selloff like this for quite some time and this represents one of the first genuine cracks we've seen in the bank's premium valuation, distinct from broader market selloffs driven by tariffs, the Fed, or geopolitical concerns. Though it appears CBA's outlook rests less on fundamentals but more on flows. Will capital return to CBA or will it rotate to its peers, miners or something else?
