Lofty ambition royally thwarted

Like Queen Elizabeth's year of 1992, during which she dealt with separation and divorce in the family and a fire, so Smith is having to deal with similar problems within the ANZ family that are holding back the expansion plans he so ambitiously outlined at the start of his reign.

Yesterday's setback is the worst since Smith took over the chief executive's job from John McFarlane 10 months ago.

As we all now know, Smith was appointed right at the end of the banking industry's last golden run of profit and revenue growth.

That coincided with the global credit crisis which, in terms of putting paid to sustained earnings expansion, has exacerbated the economic slowdown in the bank's core heartlands of Australia and New Zealand.

Not only has Smith had to deal with spot fires such as higher funding costs, slowing revenue and profit growth, rising bad debts and the politics of "top-up" home loan rate rises, he's also had specific problems which appear solely of ANZ's making.

Having memorably described himself as being "pissed off" with what he describes as legacy issues, it is clear Smith is unimpressed with the situation he inherited in the one-time main driver of ANZ's earnings: its institutional business.

Despite ANZ indicating in February and then April in trading updates - and subsequently in its half-year results - that it was getting a handle on the troublesome corporate division, Smith has found it has just been adding to ANZ's woes.

Its seemingly risky lending practices and loose management controls have given rise to costly financial troubles via Tricom, Opes Prime and now Primebroker - all of which spells the end for the bank's securities lending business, for surely Smith will take the axe to it when he completes his review of that operation next month.

Those problems, though, are just part of the reason why the institutional operations have been responsible for 84 per cent of the $1.6 billion increase in provisions the bank has had to take since the 2007 financial year.

ANZ has been particularly exposed to the shell-shocked property sector and other key business areas where the bank's name - and reputation - has been sullied by what seem to be lax judgments of risk.

Throw in the extra general provisions for cyclical global and domestic economic downturns and it is little wonder Smith will shortly unveil a cash profit of about $3.1 billion - down as much as $800 million on the corresponding period last year.

And while shareholders won't see a cut in final dividend, they will have to live with a $1.36-a-share payout that won't rise in line with the underlying profit growth of 8 per cent.

But at least it's better than the performance of ANZ's shares - which have virtually halved in value during Smith's brief tenure.

While that's largely because of the global credit crisis and its economic fallout, the knock-on effect has been to stymie his ambitions to expand swiftly into Asia and double the bank's profits by 2012. In that regard, for every step forward ANZ has taken its so-called legacy problems and general trading woes have dragged it a step back back to where Smith started.

He, for one, will therefore be hoping for a swift end to a horrible year - just as long as 2009 doesn't turn out to be equally as bad.