NAB in new class action over toxic debt exposure

18 November 2010
Maurice Blackburn Lawyers has today started court proceedings against the National Australia Bank Limited over its failure to disclose the bank's exposure to US toxic debt during 2008.

Maurice Blackburn principal Andrew Watson said 250 institutional and retail investors had now signed up for the class action. The firm is claiming losses in the vicinity of $450 million.*

Maurice Blackburn was contacted by shareholders following a $6 per share plunge in the bank's share price in July 2008. NAB had bought $1.2 billion in Collaterised Debt Obligations (CDOs) in 2006 which comprised asset-backed securities, in particular US residential mortgage backed securities. These CDOs had a heavy exposure to the sub prime residential mortgage market which became "toxic debt" in 2007 and early 2008.

In late July 2008 NAB suffered the biggest drop in its share price since 1987 when the bank revealed it had lost up to $1b in the US mortgage crisis.

"We will allege that between 1 January 2008 and 25 July 2008 NAB did not properly disclose to shareholders and potential shareholders all material information relating to its CDO exposure. Shareholders who bought shares before NAB revealed its true position suffered losses as a result." said Mr Watson.

"In early May 2008, the NAB told the market that it had provisioned $181 million, in respect of its $1.2 billion CDO exposure. The bank announced at the same time that this was a very conservative provision. Investors took comfort from this apparently conservative and appropriate approach.

However only two months later, in July 2008, NAB increased its total provision to $1.1 billion, or 90% of the value of the CDOs. In the following days NAB's share price plunged by nearly $6 and analysts complained strongly about the misleading nature of NAB's earlier announcement."

George Vlachos one of the lead applicants on the class action, lost between $3000 and $7000 when he invested in NAB shares between January and May 2008. Father of two, George is the owner of Canteen Vending a vending machine supplier in Sydney. His private company Pathway Investments invests in the stockmarket to provide additional family income.

"Disclosure of all financial information is the central link between investors and companies. It is important that all publicly listed companies understand that proper disclosure is paramount to investor confidence in the system," said Mr Vlachos.

"I look for safety and value when I buy shares and I thought I was safe going with a big bank like the NAB.Mum and Dad investors must have confidence so they can make decisions based on accurate information."

"As a retail investor I don't have the firepower to recover my losses, the only chance I have is to join a class action.

Maurice Blackburn will be asking the Victorian Supreme Court for orders that NAB disclose the names of its CDOs. Despite provisioning $1.1 billion against them, NAB has never disclosed the names of its CDOs to the sharemarket.

This class action is being funded by International Litigation Funding Partners and investors can join on a "no win-no charge" basis.

*Losses claimed by shareholders may be higher or lower depending upon the method used for calculating loss which remains an unsettled question in Australian law.

Registration of interest

If you (or those you represent) purchased shares in NAB between 1 January 2008 and 25 July 2008 and are interested participating in the class action, please email us on nabclassaction@mauriceblackburn.com.au with your name and contact details.   We will provide you with further information about the proposed class action. You can also contact Jacob Varghese on 1800 675 140 with any questions.

Please note that registration does not obligate you to participate in any action, and does not obligate you in any way in relation to legal costs. It will however ensure that you will be provided with information regarding the progress of the potential claim and will enable us to provide you with advice regarding whether you should participate in the claim.

More information on the NAB class action.

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