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ANZ takes a hit over profit result -

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Reporter: Peter Ryan

PETER CAVE: Australia's fourth biggest bank, the ANZ, has received a share market hammering this
morning after delivering a worse than expected profit result.

The ANZ's first half cash profit has been almost halved to $954-million, after a major blowout in
bad debt provisions.

The bank has also slashed its dividend while warning that tough economic times will continue well
into 2010.

Here's our business editor Peter Ryan.

PETER RYAN: More than a year ago, the ANZ's chief executive Mike Smith spoke openly about a
"financial services bloodbath".

Since that dire prediction, he's overseen a surge in bad and doubtful debts, deeper exposure to the
global financial meltdown and a steady decline in the all important bottom line.

Today it got a whole lot worse with first half cash profit down 43 per cent to $954-million.

Even so, Mike Smith knows other banking chiefs in the US and Europe would love to have his problem.

MIKE SMITH: Given the global economic environment and the problems facing the financial system
around the world, that is a very credible result.

It demonstrates ANZ's strength and the fact that the Australian banks are still making reasonable
money and is one of the reasons our economy is better placed than most in relation to other OECD
economies.

PETER RYAN: This time last year, the ANZ's half-year cash profit stood at $1.6-billion. But that's
been eaten away by bad and doubtful debts which have doubled in the six months to almost
$1.5-billion - a blowout on earlier expectations.

Mike Smith says while debts are being reined in, the ANZ is getting back to banking basics.

MIKE SMITH: We have been realistic and pragmatic on two fronts. One, facing up to the legacy issues
in the business which were more significant than originally anticipated and two, preparing the
balance sheet for the global recession and the weakening credit environment that came with it.

PETER RYAN: Mr Smith also became the latest to concede that Australia is in recession.

MIKE SMITH: The financial crisis and economic slowdown in Australia and in New Zealand is playing
out as we expected for over a year now. The bloodbath in financial services globally is now
beginning to abate with some continuing positive signs that the system is at last beginning to
stabilise.

PETER RYAN: But Mike Smith says Australia is yet to see the worst of the downturn, with recent good
news from the Reserve Bank perhaps hiding the real problems in corporate Australia.

MIKE SMITH: My rationale for this is that it is because of low interest rates which have not
strained corporate cash flows, as was the case in the early '90s; and therefore we are not getting
the early warning signs of cash flow strain that we saw in the last cycle.

You therefore have companies that move from investment grade to basket case overnight.

PETER RYAN: But Mike Smith says it's clear that many Australians don't understand the new and
uncertain environment and now that after a boom time era, it comes down to one brutal reality;
survival of the fittest.

MIKE SMITH: After 15 years of good times, there has got to be an element of poor quality. There has
to be. In 15 years badly-run businesses can make money; right now they can't. And we are beginning
to see that normalisation happen, whereas good companies will still make good money and will still
do well, poor companies will, as I say, hit the wall.

PETER CAVE: The chief executive of the ANZ Bank, Mike Smith, ending that report from our business
editor, Peter Ryan.