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Banks lead market down -

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ELEANOR HALL: Australia's biggest banks have been battered once again on the share market, because
of fears their bad debts will cut into profits.

It was NAB last week, then this morning before the market opened ANZ told investors it faced
increased costs because of the deterioration in global credit markets.

The bank said its underlying business was strong but that it expected its annual profit to fall.

Reporter Brendan Trembath joins us now with more.

So Brendan, the market had a huge slump on Friday. How turbulent has trading been so far this
morning?

BRENDAN TREMBATH: Eleanor, it hasn't got any better after Friday. In the first two hours of trading
on the Australian stock market today, stocks fell about one per cent. That was after a three per
cent decline on Friday.

If we look at banks and other financial companies, they are well down today. ANZ, the subject of
today's announcement, down more than nine per cent. The Commonwealth Bank falling close to five per
cent.

National Australia Bank down two and a half per cent and Westpac falling about four and a half per
cent.

The smaller banks also affected. St George Bank dropping close to six per cent.

Insurers affected too because their business is all about risk. QBE Insurance down close to four
per cent and Suncorp Metway falling four per cent.

ELEANOR HALL: Now we had some frank talking from NAB's chief executive on Friday, what sort of
financial pain is the ANZ forecasting?

BRENDAN TREMBATH: Well, the chief executive officer, Mike Smith has been telling investors that it
is going to be a difficult period. He says that annual profit could fall by up to a quarter.

On Friday we heard from the National Australia Bank about money it has to set aside because of
possible bad debts, well ANZ is in a similar position.

It says that its provisions for the year to October will be about $2.1-billion. Now the ANZ chief
executive Mike Smith spoke on a conference call this morning.

MIKE SMITH: Having to do this is bad enough but having to do it at a time when, despite the general
global economic gloominess and despite the global credit crisis, despite higher funding costs and
higher oil and food prices, despite all that, in terms of our strategic end game, we are actually
making very good progress and we were picking up steam or are picking up steam.

ELEANOR HALL: That is the ANZ chief executive officer Mike Smith trying to put a bit of good spin
on that Brendan but the Treasurer Wayne Swan said there have been some poor decisions in the
sector. Who does he blame?

BRENDAN TREMBATH: Well, no one in particular but he seemed to take his cue from Mike Smith who in
that conference call, he did express some disappointment.

He said that it is apparent in the past that ANZ had allowed the development of small areas of what
he called non-core activity. Basically it means that things were doing things they weren't really
meant to. It wasn't the company's core business but he said he was addressing those issues.

But here's how the Treasurer put it when he spoke to reporters in Canberra.

WAYNE SWAN: What we are dealing with here today in terms of the ANZ and their chief executive has
made it very clear, is that we are living with the consequences of some poor investment decisions
that in fact go back years.

Over and above that, you have also got the fallout of what is occurring in global financial markets
and that is therefore impacting upon some investments also made years ago by some of these
institutions.

ELEANOR HALL: And that is the Treasurer Wayne Swan. Brendan, what about the executives ultimately
in charge of these institutions? Can they expect to have their pay cut?

BRENDAN TREMBATH: Well, it is hard to say because the Government has said it expects remuneration
for the people who run organisations to be linked to performance and when you speak to those
people, they say their remuneration is linked to performance.

But they are often keen to say when things are going well that they deserve to be well remunerated
but when things aren't going as well, it doesn't always work the other way. They don't always get
their pay cut as quickly as it is increased when things are going well.

So we can expect more debate on that. At the moment, shareholders have somewhat of a say in whether
executives are remunerated but often the votes are non-binding so they might express their concern
about high pay packages at a time when markets are tanking but executives are still rewarded with
increased pay.

So more debate on that on a particularly bad day for the Australian market.

ELEANOR HALL: Brendan Trembath, thank you.