NAB cuts 600 jobs to save $800 million

Investors beware: it's savings not growth.

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According to the Finance Sector Union, the National Australia Bank (ASX: NAB) has cut or outsourced a total of 571 jobs from various departments in 2013 alone.

The Australian Financial Review says the jobs are being axed as part of the company's massive cost reduction strategy as it seeks to save up to $800 million a year by 2018. FSU assistant secretary Geoff Derrick was quoted as saying "We are expecting more cuts to come. It makes us very nervous about job security in the National Australia Bank".

NAB has been slowly shifting through various businesses to seek out any opportunity to cut costs. Assistants, IT, wealth management and finance and strategy have already succumb to cuts as it stealthily carries out its plan.

CEO Cameron Clyne announced huge savings earlier this year despite the company recently reporting a third-quarter cash profit of $1.5 billion. This result is expected to help our nation's fourth biggest bank to a profit of around $6 billion when it reports on October 31.

As companies get bigger it's inevitable that top-level staff will use visionary management skills and look to cut costs in order to improve profit margins. ANZ (ASX: ANZ) and Telstra (ASX: TLS) have both been in the spotlight on a number of occasions this year for reducing costs (usually in the form of job cuts or offshoring) in a big way.

Telstra recently said it planned to offshore up to 170 jobs from its National Application Services division despite the business recording a 17.7% profit in its most recent annual report.

Meanwhile ANZ recently confirmed that it is looking to offshore more than 590 Melbourne-based call-centre jobs. In early 2012, the FSU warned that about 10,000 banking jobs were at risk over an 18-month period. When the union released that information, ANZ Australia chief executive Philip Chronican said that it seemed plausible.

Company chiefs are under pressure to make profit wherever they can and return it to shareholders. In Commonwealth Bank's (ASX: CBA) recent full-year report it was revealed that CEO Ian Narev earned around $7.8 million or $150,000 in one week — twice the average Australian annual income.

Foolish takeaway

It's not just banks that cut jobs, insurance companies and any large scale business will eventually try to counter a plateau in growth by reducing costs. Investors looking at any of the big banks as potential investments should carefully consider whether or not their current record profits can continue in the near term because this Fool thinks their cost-cutting can only go on for so long.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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