Unlike the receptions for other banks reports or updates this reporting season, Westpac's third quarter trading statement yesterday was given the thumbs down by the market.

The bank's shares lost more than 4% to $20.25, after being as low as $19.97 during trading yesterday.

At one stage the fall in Westpac shares dragged the overall market into the red. It later struggled back into positive territory, and then slid back to end down 0.8% on profit fears.

That big fall was in contrast to the 1% - 1.5% falls for its peers yesterday.

Investors, it seems were worried about unexpected costs, some accounting moves, and the way the country's second biggest bank was pushing for growth in a subdued banking environment.

Westpac's weakness was despite it revealing a 10.7% rise in third quarter cash earnings to $1.55 billion, from the $1.4 billion in the same quarter a year ago.

That was $50 million under market estimates, and also lower than the cash profits in the first two quarters of the current year.

(Cash profit, which excludes one-off items and non-cash accounting items, is best measure of bank profitability).

In May, Westpac reported a 7% rise in first-half cash profit to $3.17 billion.

That result was boosted by a drop-off in charges for bad debts (as were the results of its peers).

The solid third quarter cash profit means the bank is on its way to another year of record profit, (as the other big banks are), but that was ignored by investors.

The bank's net interest margin of 2.12% was up four basis points from the first half's figure of 2.08%, after excluding volatile and one-off items, Westpac said yesterday.

The CBA, NAB and Bendigo and Adelaide Bank reported similar improvements (around 0.05%) in their net interest margins in the three or six months to June.

And Westpac said what it called "stressed assets" fell to 2.67% of committed exposures at June 30, down from 2.85% at the end of the March quarter.

So all in all, the news was reasonably good, but all ignored.

What investors didn't like were comments like this from CEO, Gail Kelly.

"The June quarter 2011 saw the operating environment become more subdued with consumers increasingly cautious and larger businesses continuing to de-leverage."

"This was reflected in slowing system credit growth in the quarter, and weaker markets," Mrs Kelly said.

"Notwithstanding these trends, momentum across the Group has been sound, with solid flows in lending, deposits and funds under administration, underpinned by a further deepening of relationships. Sales of wealth and insurance products have been particularly pleasing and, over the last 12 months, we have experienced the biggest increase in cross sell of the major banks.

"These trends, combined with our very strong balance sheet and leading asset quality, mean we are operating from a position of strength," Ms Kelly added.

Those comments about demand for credit and weaker were no different to the commentary emerging from NAB and the CBA last week in particular. They used words like "challenging" (a favourite of this reporting season) to describe trading conditions and the outlook.

A warning of higher costs this quarter also took some investors by surprise.

"In the fourth quarter 2011 costs associated with head office and administration changes will be higher.

"In addition, expenses in the fourth quarter 2011 will be lifted by one-off costs associated with the Bank of Melbourne launch and transaction expenses related to the acquisition of J O Hambro Capital Management by BT Investment Management Limited," the bank said.

Speaking to the media, Ms Kelly later hinted that job cuts were on the cards at the bank.

"Net, net I would say staff will come down somewhat over the year we are in, and will come down somewhat over next year, but there are quite a few moving pieces," she was quoted as saying.

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