This is why NAB shares fell because of plans to cut 4000 staff

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The NAB today announced a healthy full year profit and unveiled plans to reduce costs further by reducing staff by a net 4000 people – 6000 will lose their jobs with 2000 new roles created – over the next few years.

But the bank’s shares price took a dive, dropping 2.9% to $31.93 in early trade.

The reason? Those redundancies don’t come cheap and most of the costs are being paid for now while the benefits are sometime in the future.

The bank says costs will rise 5% to 8% in the current financial year plus a $500 million to $800 million restructuring provision in the first half.

Cost savings are forecast to be greater than $1 billion but the target date is the end of 2020.

In the meantime, the bank says it expects increased revenue from higher customer retention and targeted market share gains.

Analysts at UBS says this latest guidance implies that costs in 2020 are $135 million to $365 million above current forecasts.

This represents 1.5% to 4% of net profit after tax.

“Management expects this to be offset by stronger revenue, but the market may not incorporate revenue upside until there are signs of delivery,” says UBS.

The NAB board expects be able to maintain dividends this year at 2017 levels despite the extra costs.

Here’s how the NAB sees the savings and the costs:

Source: NAB

CEO Andrew Thorburn says he’s accelerating the bank’s strategy.

“This involves an estimated $1.5 billion increase in investment by the end of FY20 to further improve the experience for our customers, reshape our workforce and grow our bank,” he says.

“Cost savings of greater than $1 billion are targeted by the end of FY20 as we further simplify our business.’

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