Supreme Court of Victoria.
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 CDO’s. 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. On 9 May, 2008, NAB told investors that the $181 million 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 claimed 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 claimed that NAB should have shared that information with shareholders.
The class action was 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, continued to hold them on 25 July 2008 and suffered a loss as a result of NAB’s alleged contraventions.
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.
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 was required to make continuous disclosure of any information that would be likely to influence investors’ decisions to buy, sell and hold NAB shares.
NAB was also prohibited from making misleading or deceptive representations in relation to NAB shares.
The plaintiffs alleged 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.
On 19 December 2012, the Supreme Court of Victoria approved the settlement of the NAB Class Action in the amount of $115 million.
Under the terms of the Scheme of Settlement, Maurice Blackburn was appointed to be the Administrator of the settlement fund.
Settlement Approval (19 December 2012).