No wonder the Commonwealth Bank (CBA) says it is cautious about its prospects for the 2011 financial year, despite posting a 42% rise in cash profit to a record $6.10 billion for the year to June.

A second half slowdown, especially in retail and business banking saw the bank record a 3% drop in operating income for the six months to June 30.

And growth in net cash earnings slowed to 7% in the June half from 54% in the December period.

The market didn't like the figures at the start of trading, despite the sharp drop in bad debts and higher dividend.

It especially didn't like the admission from the bank that the first half (the one we are in now) will be softer than a year ago.

"I don't think there's any doubt that everybody around the county has experienced a degree of drop-off in activity during the last two to three months," CEO Ralph Norris told analysts yesterday.

"In our view the first half will be a little softer than we thought coming into this year, that is the calendar year, and in my view the second half will be stronger," he said.

The shares traded down $1.56 or 3% at a day's low of $51.16 in afternoon trading before ending weak at $51.19.

The other major banks were lower, with ANZ down 45 cents, or 2%, at $22.18, the National Australia Bank lost 61 cents, or 2.50%, at $23.89, and Westpac fell 86 cents, or 3.7% cent, to $22.42.

The market also fell because of concerns about the US economy after the latest Federal Reserve statement.

Those concerns continued overnight with a global sell off which topped 2% in the US.

Our market was pushed down nearly 2% yesterday as it and Japan kicked off the sell down, which will continue today.

The CBA said that for the June half, the group's net profit after tax ("cash basis") was $3,158 million, up 7% on the prior half.

With that strong start to the year in the first half (thanks to lower provisions, but higher sales of mortgages) the second half slowdown is plain to see.

"While impairment expense was significantly lower than the prior half, the Group's operating performance was impacted by a ten basis point decline in net interest margin to 2.08% together with three less calendar days, lower CommSec trading volumes and retail exception fees.

"In addition to the healthy operating performance, there was a significant reduction in impairment expense on the prior year to $2,075 million."

In the June half, impairment expensive fell $691 million to $692 million and more than offset the 2% fall in retail profit and a slowing in business profits to just growth of 3% in the June half, against 21% for the full year.

The bank's bad debt charge fell by $1.3 billion during the year to just over $2 billion - which was the biggest driver behind the 42% jump in cash earnings.

In the year to June 30, 2009 earnings of $4.3 billion were impacted by a $3.4 billion charge.

The bank said the sharp fall in impairment charges during the year was "mainly due to the non-recurrence of a small number of single name corporate exposures experienced in the prior year and improved corporate portfolio credit quality.

"This was partly offset by additional impairment expense in Bankwest, particularly in relation to east coast property development exposures."

"However, recent uncertainty over the pace of recovery in the United States and Europe highlight the downside risks still in play.

"These risks have not helped domestic business and consumer confidence, both of which remain fragile.

"This fragility manifested itself in a slowing in the underlying momentum in our business at the end of the 2010 financial year," Mr Norris said in the statement.

"It is appropriate to maintain a degree of caution about the prospects for our business for the coming year."

The bank said that net interest income growth of 11% on the prior year "reflected solid retail lending and deposit balance growth and a five basis point improvement in the full year net interest margin to 2.13%.

"Other banking income declined 3% on the prior year, impacted by lower credit card loyalty fees, exception and ATM fee income, combined with lower trading income.

"Funds management income increased by 4% on the prior year due to improved investment market returns driving higher average Funds Under Management and Funds Under Administration, partly offset by lower performance fees and dividends from infrastructure assets;

"Insurance income increased by 2% on the prior year, driven by solid inforce premium growth, partially offset by higher claims experience including significant weather events; and

"Operating expense growth of 5% on the prior year reflects the Group's continued focus on people, customers and technology, while maintaining a disciplined approach to expense management."

The final dividend declared was $1.70 per share, an increase of 48% on the final for 2009.

The total dividend for the year to 30 June 2010 was $2.90, taking the dividend payout ratio ("cash basis") to 73.9%, the bank said.

The result was struck against a 6% rise in total operating income to $18.8 billion for the year ending June 30, 2010.

That was made up of $15.9 billion from the core banking operations and a further $2.8 billion from its funds management business and its insurance division.

Another sign of its caution is that the bank still has provisions of $5.5 billion for bad debts covering this year and prior accounting periods.

This includes $1.2 billion of what is called "management overlay" (the bank's own estimate as to how much it may have to set aside for any further downturn over the 2011 financial year).

Rainy day money, to put it another way.