MARKETS SPECTATOR: If NAB applied itself...

Citigroup upgraded National Australia Bank to buy from neutral ahead of its results and briefings. It also raised its target price for the stock to $29.75 from $25.

Citigroup notes that NAB has joined the other bank's share rally recently as continued central bank action around the globe drives investors towards high yielding equities. Citigroup sees fewer near-term risks of disappointment for NAB and the potential for positive responses to announcements on either asset sales, expense initiatives and management change.

Citigroup has outlined a five-point plan that it believes would put the bank on the path to longer-term success.

Citigroup believes:

1. NAB could benefit from increased banking experience, a better match of skill sets to roles and better alignment of remuneration with performance at the senior executive level.

2. Credit risk management, especially given the rising corporate and specialised asset risks, needs overhauling and the benign credit growth environment provides the ideal time to do so.

3. Divestments in UK Retail Banking, UK CRE and Australian Custody could release up to $4 billion in capital.

4. A drive to reduce costs, with recent press coverage suggesting a new 'Win Today, Win Tomorrow' cost drive, but without large scale redundancies.

5. NAB's funding profile requires a couple of years work in order to meet current peer averages, with a likely further hit to net interest margins of five to 10 basis points.