On Thursday 18 November 2010 Maurice Blackburn Lawyers
issued proceedings in the Supreme Court of Victoria against
National Australia Bank Limited on behalf of shareholders who
purchased or acquired an interest in shares between 1 January 2008
and 25 July 2008. The action is to recover losses suffered as
a result of alleged non-disclosures. The non-disclosures
relate to NAB's exposure to toxic debt in Collateralised Debt
Obligations (CDOs).
NAB's CDOs
As part of its securitisation business, nabCapital (a division
of the NAB Group) purchased AUD$1.2 billion of CDOs through the
provision of liquidity lines to conduit financing vehicles. These
CDOs comprised asset backed securities (ABS), in particular
residential mortgage backed securities (RMBS), including exposure
to US subprime assets of AUD$360 million.
By mid-2007 concerns regarding the US subprime sector had
broadened into a more general credit crisis. In the latter half of
2007, as credit market liquidity froze, major financial
institutions announced huge write-downs across CDOs and significant
losses. For example, US Investment Bank Merrill Lynch
commenced reporting major write-downs across CDOs in October
2007. Even so, Merrill Lynch recently agreed to pay
US$475million in a settlement of a claim that it had been too late
in its disclosure of its toxic CDOs.
Despite its substantial CDO exposure NAB announced no
write-downs until 9 May 2008. On 9 May 2008 NAB presented its first
half results for 2008, including a provision of AUD$181m in respect
of its CDOs. This provision was only about 15% of the face value of
the CDOs at a time when other banks were engaging in much more
significant write downs. Yet, NAB reported the provision was the
result of a "forensic deep dive" into its portfolio, including the
use of "some fairly bleak assumptions" in its models, and that a
decision had been made to "take a strong provisioning position that
protects our balance sheet against whatever may come . . . "
Finally, on 25 July 2008 NAB announced an additional provision
of AUD$830m to its portfolio of ABS CDOs, bringing the provision to
a level of 90% of the face value of the CDOs. NAB blamed
unprecedented conditions in global credit markets for the
provision. But these conditions existed in January 2008 and
certainly by 9 May 2008.
NAB Class Action - The Claim
NAB is a listed disclosing entity within the meaning of the
Corporations Act. As such, it is required to comply with the
"continuous disclosure" regime under ASX Listing Rule 3.1 and s 674
of the Corporations Legislation. Under these provisions, NAB is
required to advise shareholders and the market of all information
of which it was, or ought to have been, aware which might
materially affect its share price. Information is likely to have a
material effect on the share price if the information would be
likely to influence persons who commonly invest in shares in
deciding whether to buy, sell or retain shares.
We consider that for the period from about 1 January 2008 to 25
July 2008 NAB had not properly disclosed to shareholders and
potential shareholders all material information regarding huge
provisions, or the real risk of huge provisions, to its CDO
portfolio.
When the provision was revealed on 25 July 2008 the share
price of NAB fell dramatically from a close of $30.70 on 24 July
2008 to a low of $24.78 on 29 July 2008 (a decline of $5.92, or
19.3%). Given the markets reaction to the disclosure of the
provision there is little doubt that the information was
material.
If you (or those you represent) purchased shares in NAB between
1 January 2008 and 25 July 2008, you may be entitled to recover
losses suffered as a result of the conduct of NAB. The value
of each shareholder's claim is obviously different and will require
legal and accounting analysis. However, we propose to claim as the
loss the difference between your purchase price and either what you
received on sale of your shares or their market value if you have
retained those shares.
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 class action. You can also
contact Jacob Varghese on 1800 810 856 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 claim and
will enable us to provide you with advice regarding whether you
should participate in the claim.
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