---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 205773
conversation_id: 7410e5a8-c2a9-43cc-92ea-4abded0ae1de
citations: 3
created: 2026-05-31 19:33:21Z
---

# What’s the bull case bear case for CBA?

# Commonwealth Bank of Australia (CBA AU) — Bull Case vs. Bear Case

**Context**: CLSA's house view (analyst Ed Henning) is **Underperform** with a A$143 12-month target — implying ~22% downside from the A$182.5 share price at the 20-Jun-2025 sector note [7]. The latest StreetAccount tape print is A$153.28 (14-May-2026, post-3Q26 trading update), so the stock has already de-rated meaningfully toward CLSA's bear-case target since the note was written. The framing below pulls the long and the short sides directly from CLSA's coverage and overlays them with CBA's most recent 3Q26 disclosure (13-May-2026).

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## Bull Case — Why CBA Deserves Its Premium

**1. Best-in-class franchise quality.** CLSA itself concedes that CBA is "Australia's premium bank with the highest ROE, great deposit franchise, best technology platform, peer leading provisioning, elevated capital levels and impressive leadership team" [1]. The same characterisation appears as the lead sentence of CLSA's CBA investment thesis: "higher ROE, active buyback and best technology platform" [2].

**2. Profitable, system-plus volume growth that is widening, not narrowing.**
- For the 12 months to March 2026, **home-loan balances grew A$41bn (1.0x system)** and **household deposits grew A$38bn (1.1x system)** [9].
- **Business lending continues to grow above system at +12.5% YoY**, with system multiple 1.2x in 3Q26 [9].
- In 1H26, mortgage growth was A$45bn (+7%) and business lending +12% at 1.3x system — described by Matt Comyn as the "strongest domestic deposit and lending balance growth in a half year since 2008" [10].
- CLSA notes CBA "is growing above system in higher margin SME lending and around system in mortgages now returns have slightly improved" [1].

**3. Stable margin despite a tougher backdrop.** Through both 3Q25 and 3Q26, CBA has delivered "broadly stable" underlying NIM. In 3Q25, "excluding non-recurring earnings, net interest margin was stable" with replicating-portfolio and equity-hedge income offsetting deposit competition [5]. The 3Q26 update repeats this: "Underlying margin was broadly stable excluding non-recurring tailwinds" [8].

**4. Strong, well-capitalised balance sheet generating durable returns.**
- 3Q26 CET1 (Level 2) of **11.6%** sits well above APRA's 10.25% minimum, even after a 1H26 dividend impact of -76bps [8].
- CLSA forecasts ROE staying in the 13.1–13.7% range FY25–FY27 (vs. peer-best leadership), with a payout ratio near the top of the 70–80% target band [6].
- Funding settings remain robust: customer deposit funding 79%, LCR 133%, NSFR 116% [8].

**5. Structural flow tailwinds underpin the share price.** Even CLSA's bear scenario acknowledges "some likely flow tailwinds persisting" from index funds and superannuation, with hedge funds "largely avoiding" shorts — explicitly listed as the principal upside risk: "continued positive flows from index funds and superannuation" plus better margin/volume/expense outcomes [3]. This is why CBA has historically traded — and CLSA price-targets — at a premium PB (3.0x vs. 2.1x long-run) and PE (24x vs. 14.1x LR) [7].

**6. Resilient asset quality.** Loan-impairment expense of just A$316m in 3Q26 with "underlying portfolio credit quality remains sound" [8]; in 3Q25, CLSA's revisions actually included a *lower* FY26 loan-loss expectation [4].

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## Bear Case — Why CLSA Rates It Underperform

**1. Valuation is the single biggest issue.** CLSA's flagship objection: CBA trades at **c.29.1x forward PE vs. peer average c.15.7x ex-CBA** — i.e., the relative valuation premium is "stretched" [1]. CLSA models a 70% premium to its long-run PE multiple and a 43% premium to its long-run PB [7]. Even applying generous *target* multiples of 24x PE and 3.0x PB, the implied price still works out to A$143 — well below the prevailing A$182.5 [7].

**2. Earnings outlook is soft — there is no growth engine to grow into the premium.** CLSA: "we see a soft earnings outlook and CBA's valuation remains challenging" [4]. The FY25–FY27 model has cash NPAT essentially flat (+0.1% in FY26, +1.9% in FY27) and net interest margin drifting from 2.08% in FY25 to 2.02% by FY27 [6]. With consensus net profit growth essentially zero, the only way to justify the premium PE is multiple persistence — not earnings growth.

**3. Replicating portfolio and rate-cut headwinds compound.** "Returns from the replicating portfolio and equity hedge are sensitive to three and five year swap rates, which have fallen materially in recent months… margin tailwinds reduce. The impact of the reduced tailwinds will be more evident in FY26 and beyond" [5]. CLSA forecasts NIM down to 2.04% in FY26 [6]. The 3Q26 release confirms the dynamic is now visible — non-recurring tailwinds had to be backed out for management to claim "broadly stable" underlying margin [8].

**4. Cost growth running ~6% in FY25 with persistent investment burden.** CLSA flags ~6% cost growth in FY25 with elevated staff (~800 hires added in 1H25) and ~A$2.2bn investment spend; cost-to-income drifts from 45.2% (FY25) toward 45.9% (FY27) on the CLSA model [6]. 3Q26 confirms operating expenses still rising on cloud, software, and AI spend [8].

**5. Asset quality has bottomed and is normalising upward.** CLSA: "we anticipate loan losses slightly ticking up in future periods" with BDD/GLA stepping from 9bps in FY25 to 11–12bps in FY26–27 [6]. 3Q26 already shows "higher collective provisions reflecting heightened geopolitical and macroeconomic uncertainty" [8].

**6. Limited capital-return optionality vs. peers.** With CET1 of 11.6% (3Q26), CBA's capital position is strong but the AT1 regulatory change consumes ~25bps of scope for buybacks — CLSA notes "less scope for buybacks in the current uncertain environment" sector-wide and expects CBA to "neutralise dividend and hold off buybacks" rather than expand returns [6].

**7. CLSA's downside risk list — what could push the stock below A$143.** "Margin pressure increasing, elevated loan losses or, worse, a recession creating pressure on the dividends" [3].

**8. Within the sector, CBA is the *least preferred* major.** CLSA's 12-month preference order is **ANZ → NAB → WBC → CBA**, with ANZ the only Outperform [1]. Relative to peers, the implied returns are stark: ANZ +9.9% upside, NAB -12.9%, WBC -17.2%, **CBA -21.7%** [7].

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## Side-by-Side Snapshot

| Dimension | Bull Case | Bear Case |
|---|---|---|
| Franchise | Premium deposit franchise, best tech, highest ROE [1] | Premium already fully priced in [1] |
| Growth | +12.5% YoY business lending (1.2x system); 1.0x system mortgages [9] | Consensus EPS growth ~0% FY25→FY27 [6] |
| NIM | "Broadly stable" reported margin in both 3Q25 and 3Q26 [5][8] | Replicating-portfolio tailwind fading; CLSA models NIM to 2.02% by FY27 [5][6] |
| Capital | CET1 11.6%, well above 10.25% APRA minimum [8] | AT1 changes constrain buyback scope; "neutralise dividend, hold off buybacks" [6] |
| Asset quality | "Underlying portfolio credit quality remains sound"; impairment A$316m [8] | BDDs forecast to rise from 9bps → 12bps GLA by FY27; arrears ticking up [4][6] |
| Flows | Passive/super inflows + hedge funds avoiding shorts = price support [1][3] | This is the *only* structural support — not earnings — for the premium |
| Valuation | 24x PE / 3.0x PB target multiples justified by franchise [7] | 29x spot PE vs. 15.7x peers; -21.7% to blended target A$143 [1][7] |
| Catalysts | FY25 result (Aug), positive surprise on costs/credit | More RBA rate cuts, replicating-portfolio runoff, rotation into resources |

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## Bottom Line

The CLSA-coverage view is that CBA is a **high-quality bank trading like a tech stock** — best-in-class franchise, peer-leading ROE/capital/asset quality, and an active passive-flow tailwind, but with limited earnings growth, a fading replicating-portfolio benefit, and a valuation premium that already prices in the franchise advantage and then some [1][2][7]. The bull case is "premium franchise + flows", the bear case is "valuation + soft earnings outlook + rate-cut/NIM headwinds" — and CLSA explicitly comes down on the bear side, naming CBA the **least preferred major bank** with -21.7% implied downside [1][7].

The stock's drift from A$182.5 (Jun-2025) to ~A$153 (May-2026) suggests the market has partially closed the gap toward CLSA's view, even as CBA's operating delivery (volume growth, stable underlying margin, sound credit) [8][9][10] has remained on plan — i.e., the de-rating is happening through multiple compression, not earnings disappointment.

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**Sources**
[1] Australian banks — Sector outlook (ANZ the one to watch) — CLSA (20 Jun 2025) — 607962478LinqAlpha.PDF
[2] CBA - U-PF (Continues to deliver but soft outlook) — CLSA (14 May 2025) — 607959409LinqAlpha.PDF
[3] CBA - U-PF (Continues to deliver but soft outlook) — CLSA (14 May 2025) — 607959409LinqAlpha.PDF
[4] CBA - U-PF (Continues to deliver but soft outlook) — CLSA (14 May 2025) — 607959409LinqAlpha.PDF
[5] CBA - U-PF (Continues to deliver but soft outlook) — CLSA (14 May 2025) — 607959409LinqAlpha.PDF
[6] CBA - U-PF (Continues to deliver but soft outlook) — CLSA (14 May 2025) — 607959409LinqAlpha.PDF
[7] Australian banks — Sector outlook (Target prices table) — CLSA (20 Jun 2025) — 607962478LinqAlpha.PDF
[8] CBA — Q3 2026 Trading Update Report (Press Release, 13 May 2026)
[9] CBA — Q3 2026 Trading Update Report (Press Release, 13 May 2026)
[10] CBA — Q2 2026 (1H26) Earnings Call, 10 February 2026

## Citations

- [8] **Commonwealth Bank of Australia, Q3 2026 TU Report** · external
- [9] **Commonwealth Bank of Australia, Q3 2026 TU Report** · external
- [10] **Commonwealth Bank of Australia, Q2 2026 Earnings Call, 10-February-2026 6** · external

