Glenn Freeman: David, thanks for your time today.

David Ellis: Pleasure, Glenn.

Freeman: Now, we've just had the Commonwealth Bank results come down, which is the first bank to report after the Royal Commission. But you've described it as something of a mixed result. Can you just talk us through some of the headline findings there?

Ellis: Yes, certainly. So, it's the first half 2019 result for the Commonwealth Bank. It was a messy result, but that was expected. The cash profit from continuing operations was about $4.7 billion. It was a little bit weaker, a bit softer than we were expecting but still a pretty good outcome considering the challenges facing the Commonwealth Bank and all four major banks in a pretty tough operating environment.

So, we saw a reasonably good volume growth. So, lending and deposit growth was modest but okay. We saw weaker net interest margins. So, that's a reflection of higher wholesale funding costs and also strong competition for new loans, particularly residential loans and switching of resi loans from interest-only to principal and interest. So, that was a bit of a negative. The net interest margin, it was down. There was really good cost management. So, operating expenses were well contained, albeit remediation and additional spend or investment in regulatory compliance was elevated and will remain elevated not surprisingly.

Freeman: Yeah. And that would be across each of the big four major banks?

Ellis: Yes. The return on equity was a bit lower. That reflects a higher capital base. So, the bank's capital is very strong. The bank's balance sheet is very strong. And the loan quality is very good. So, bad debts, loan impairment remain at historical lows for the Commonwealth Bank. And that's a big positive. That's something I really liked. So, the combination of strong asset quality or loan quality and strong capital levels, funding and liquidity gives you a lot of confidence in the future.

Freeman: Is the softening in property prices that we are seeing in some of the major cities in Australia, is that reflected in this result that's come through?

Ellis: Well, it depends what you mean. There's certainly no direct link between falling house prices and let's say, for example, bad debts. As long as the economy is continuing along okay and as long as the unemployment rate doesn't escalate, and it's not, it's actually falling around 5 per cent, employment growth is strong, interest rates generally are at historical lows broadly speaking. So, no, there's no direct link to bad debts at this stage. Home loan arrears rates, the percentage of home loan arrears rate is greater than 90 days, declined marginally which is a good point, a good plus, a big plus.

However, the falling house prices is definitely having an impact on demand for credit. So, housing credit growth is declining, and the senior executives of Commonwealth Bank expect it to continue to decline over the next 12 months, two years or so to around about the 3 per cent annual growth rate.

Freeman: On the dividend side of things, you've also alluded to the demerger of its wealth business and also the insurance business. So, how is that playing out for the rest of the year?

Ellis: Well, those sales or disposals are on track and they are expected to complete around about the middle of this year. Commonwealth Bank is also in the process demerging its wealth business which includes its mortgage broker Aussie home loans and they are expected to complete towards the end of this year.

So, assuming those transactions do complete, finish on time, Commonwealth Bank is going to have a substantial surplus of capital and we would expect to see some type of capital return next year, so 2020, more than likely an off-market structured share buyback and a big one. It could be in the range of $4 billion to $5 billion. So, quite a substantial return of capital next year. It's possible that a part of could be a special dividend, but we'll have to wait and see on that front.