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NAB plans $800 million in savings

So much for a change of strategy by one of our big four banks.

National Australia Bank (ASX: NAB) boss Cameron Clyne has kept to the same old formulae, announcing that the bank is looking for cost savings, has shuffled some senior management positions and is aiming to simplify its products and reduce duplication.

Sounding more like a plea for shareholders to stick with the bank, NAB has announced targeted savings of $800 million each year over the next five years, mainly through its technology transformation program; two senior executives will leave and several others will change chairs.

However, those $800 million in savings would be partly offset by higher software, investment and implementation costs.

Investors weren’t all that impressed, send NAB shares down 2.3% in mid-morning trading. After a disappointing year in 2012, which saw the bank suffer a $1 billion decline in profits, largely due to issues in its Clydesdale and Yorkshire banks in the UK. NAB did not offer any strategy for its UK operations, leaving shareholders increasingly frustrated.

NAB shares underperformed its main competitors, ANZ Bank (ASX: ANZ), Commonwealth Bank (ASX: CBA) and Westpac Banking Corporation (ASX: WBC) in 2012, but have rallied around 23% since the start of the year.

The changes announced today are most likely in an effort to keep up with its peers and retain market share. In February the bank announced plans to target the growing agricultural trade between Australia and Asia, following its competitors as they expand into Asia to offset low credit growth in its home markets of Australia and New Zealand.

The Foolish bottom line

NAB is on target for a $6 billion full year cash profit in 2013, after reporting a first quarter profit of $1.45 billion, boosted by improving margins, falls in wholesale funding costs, and falling bad debts. Earnings growth is still expected to be the lowest of all four majors and with a low return on equity, NAB looks to be an underwhelming proposition.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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