NAB class action

Settlement of class action

On 19 December 2012, the Supreme Court of Victoria approved the settlement of the NAB Class Action.

The Loss Assessment Formula is confidential and is only available to group members if they sign and return to Maurice Blackburn a confidentiality undertaking. A copy of that undertaking can be found here.

Under the terms of the Scheme of Settlement, Maurice Blackburn has been appointed to be the Administrator of the settlement fund. After the expiration of the appeal period, we will commence settlement administration.

Broadly there are four steps in the settlement administration process:

1.Assessment of Late Registrants

We are required to contact those people who submitted a Registration Form after the registration deadline of 4pm on 12 October 2012 (Late Registrants) and issue them with a Notice to Late Registrants and statutory declaration.

Within 14 days of receiving this Notice, Late Registrants are required to deliver a completed statutory declaration stating the reasons that they did not submit a Registration Form by the original deadline.

We must then decide whether it would be just and reasonable to allow the Late Registrant to receive a distribution. There are appeal procedures available if we decide that it would not be just and reasonable for a Late Registrant to receive a distribution.

2.Confirmation of details and claim data

After the Assessment of Late Registrants is completed, we will issue a Notice of Claim Data to each Registrant. The Notice will list all the claim data pertaining to that Registrant, as recorded in the Claim Database.

Registrants will be given the opportunity to update, amend or confirm their claim data by an enclosed statutory declaration.

3.Notice of Estimated Distribution

After we receive, cross check and process the claim data, we will perform loss calculations on the data (by applying the Loss Assessment Formula) to produce an assessment of each Registrant's claim.

We will then forward a Notice of Estimated Distribution to each Registrant, which will detail:

• The claim data related to the Registrant;
• Our reasonable estimate of the distribution to be made to the Registrant;
• The applicable rate of Funding Commission payable by the Registrant;
• The availability and terms of the Review procedure.

4. Distribution of funds to group members

After the expiration of the 21 day period in which Registrants may request a Review of the Notice of Estimated Distribution and/or the completion of any Reviews requested by Registrants, we will distribute the assessed allocations of the settlement amount to Registrants.

What this class action is about

On 25 July 2008, National Australia Bank Limited (NAB) announced that it was taking a total provision of over $1 billion to its portfolio of 10 'collateralised debt obligations' or CDOs. On that day, the price of NAB shares fell 13.5%.

This announcement came less than two months after NAB told investors that it was provisioning only $181 million against the same portfolio. At that time, 9 May 2008, NAB told investors that the $181 million provision was the result of "a forensic deep dive" into the portfolio and represented  "a strong provisioning position that protects our balance sheet against whatever may come out of these in a credit sense in the future".

The plaintiffs in the class action claim that NAB knew, or should have known, that it would suffer material losses on its CDO portfolio by at least as early as 1 January 2008. They also claim that NAB should have shared that information with shareholders.

Group members

The class action is brought on behalf of all people and companies that bought NAB ordinary fully paid shares in the period between 1 January 2008 and 24 July 2008 and suffered a loss as a result of NABs alleged contraventions. You may have suffered a loss if you acquired shares in that period and continued to hold them on 25 July 2008.

On 24 August 2012, the Supreme Court of Victoria made orders requiring group members to register their claim or opt out of the group proceedings by 12 October 2012.

For more information, please read this Notice.

CDOs explained

CDOs were the one of the exotic financial products that lay at the heart of the financial crisis of 2007 and 2008.

Another was called the 'residential mortgage backed security' or RMBS. RMBS were pools of mortgages that banks would package, slice and sell off. In the lead up to 2007, American RMBS were increasingly made up of the infamous 'sub-prime' mortgages. Sub-prime mortgages were loans to people with poor credit scores and little or no evidence of income.

CDOs were another level in the financial food chain. While RMBS were pools of low quality mortgages, CDOs were pools of low quality RMBS and other strange financial products. CDOs were especially vulnerable to any change in financial and economic conditions.

2007: the sub-prime meltdown

In 2007, the business of packaging and re-packaging low quality loans came to an end when it became clear that many sub-prime mortgages were not being repaid. In the United States, house prices were falling, unemployment was rising and so too was the number of late mortgage payments. Before long the problem had spread beyond sub¬-prime as falling house prices meant that millions of mortgages were under water.

In mid-2007, banks in Europe and the United States started to announce provisions against their holdings of sub-prime related assets. Turmoil hit financial markets as banks became afraid to lend money, even to other banks. These were the opening days of what would become known as the global financial crisis, the world's worst financial crisis since the Great Depression.

CDOs and RMBS became known as toxic debts as financial institutions steered clear of anything associated with the US sub-prime mortgage market.

NAB and the financial crisis

As the financial crisis began, NAB found itself exposed to a $1.2 billion portfolio of CDOs which included exposure to American sub-prime mortgages.

This class action alleges that NAB knew or should have known by at least 1 January 2008 that these CDOs were worth substantially less than $1.2 billion. In fact, on the basis of expert evidence, the plaintiffs say that the true value of the portfolio at that date was only about $450 million, implying a loss to the bank of around 65%.

NAB made no disclosure of expected losses on the CDO portfolio until 9 May 2008 when it announced a $181 million provision. On the plaintiffs' case, the true expected loss at that point was around $970 million - more than 80% of the portfolio.

Finally, on 25 July 2008, NAB announced it was increasing its provisions to over $1 billion, nearly 90% of the value of the portfolio.

Continuous disclosure and misleading and deceptive conduct

As a public company listed on the Australian Securities Exchange, NAB is required to make continuous disclosure of any information that would be likely to influence investors' decisions to buy, sell and hold NAB shares.

NAB is also prohibited from making misleading or deceptive representations in relation to NAB shares.

The plaintiffs allege that NAB's conduct in relation to the CDOs through the period 1 January 2008 to 24 July 2008 involved contraventions of both of these legal requirements.

Trial

The class action is currently set down for a trial starting on 3 December 2012 before His Honour Justice Pagone of the Supreme Court of Victoria.

Maurice Blackburn is acting for the plaintiffs who represent all the group members.

Media release - NAB in new class action over toxic debt exposure, 18 November, 2010

Media release - Supreme Court orders widening of NAB toxic debt class action, 3 September, 2012

Media release - Multi-million dollar settlement reached in NAB CDO class action, 9 November, 2012