ANZ just posted a horror result for the six months to March, with cash profit down 24% to $2.8 billion.

The market had been expecting a result of around $3.6 billion. The bank says that excluding one-off items totalling some $717 million, cash profit was $3.5 billion, down 4%.

Credit impairment charges – or bad debts, the element in banking that everyone’s watching right now – blew out to $918 million. ANZ warned the bank that expected an increase to at least $900 million back in March. The interim dividend has been cut 7% to 80c a share.

The bank said: “While the overall credit environment remains broadly stable, ANZ has continued to see pockets of weakness associated with low commodity prices in the resources sector and in related industries. Increased provision charges in the first half include charges related to a small number of Australian and multi-national resources related exposures.”

Michael McCarthy, chief markets strategist at CMC Markets, said the result was likely to put ANZ shares under “strong pressure today”.

He told Business Insider the results reflected “classic deck clearing from a new CEO, but the timing suggests Mr Elliott may have a tin ear for market sentiment.”

“Underlying operating income at down 4% looks uncompetitive – investors must decide if the accelerated depreciation and provisioning are one offs or the start of a new and disturbing trend,” McCarthy said.

The one-off items include an accounting change for software capitalisation worth $441 million and impairment of the group’s AmBank investment, charged at $260 million after tax.

ANZ explains the accounting change on software products as allowing it to better manage the financing of technology development. From the statement:

ANZ, by lifting the software capitalisation threshold and directly expensing more project related costs, has introduced a greater level of discipline into the management of technology investment. The change, effective from 1 October 2015, of itself does not impact the Group’s total spend on technology but better aligns the application of ANZ’s policy with the rapidly changing technology landscape, increased pace of innovation in financial services and the Group’s own evolving digital strategy. These changes bring forward the recognition of software expense resulting in lower amortisation charges in future years.

The bank’s top line, however, is also under some pressure and struggling to find growth. As the below shows, operating income was down 5% on a statutory basis over the previous six-month period and dead flat compared to the previous year.

This shines a light on concerns that in the current low growth, low-inflation environment, companies will struggle to increase their revenue base and so will have no option but to cut costs to maintain profitability.

Banks shares tumbled on the ASX yesterday after Westpac posted a slight miss on cash profit. Westpac fell 3.5% in trade while the other major banks fell between 2% and 3%.

ANZ’s miss sets up another potentially turbulent trading session for the banks, which will be punctuated by the RBA’s official cash rate decision at 2.30pm. The market is split on whether the bank will cut rates.

Comments from ANZ CEO Shayne Elliott accompanying the release contained some ominous language about the operating environment. Emphasis added here:

This result reflects a challenging period for banking and we have taken the opportunity to move decisively and adapt to the changing environment by building a simpler, better capitalised and more balanced bank.

We have strong underlying drivers in our Australia and New Zealand consumer and small business franchise and we have seen good early progress in transforming Institutional Banking. This has been supported by prudent capital management and tight control of costs with total expenses, excluding the impact of Specified Items, being lower for the first time in seven halves.

Banking is however continuing to experience rapid shifts in technology, customer expectations and regulation against a backdrop of low economic growth, volatile financial markets and rising credit costs. Our priority is to take bold action to ensure ANZ is fit and ready for this future.

This means for the immediate future we are in a period of consolidation, simplification and transition. We have a clear plan and we have made significant progress this half through a focus on four strategic priorities.

The results show ANZ has laid off 1,256 full-time equivalent staff in the six months to March.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.