NAB $115m settlement highlights major disclosure risks

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NAB agreeing to pay $115m to more than 15,000 angry shareholders who claimed that it failed in its disclosure duties is a timely reminder to stay on top of disclosure compliance.

The settlement was the result of shareholder class action after NAB suffered the biggest drop in its share price since 1987 when the bank revealed on 25 July 2008 that it had lost up to $1bn in the US mortgage crisis.

“This settlement provides redress for thousands of shareholders who, the plaintiffs alleged, suffered losses as a result of NAB’s conduct. It once again reminds public companies of their duty to keep shareholders informed,” said Jacob Varghese from Maurice Blackburn, principal lawyer on the class action.

According to Maurice Blackburn, NAB was exposed to $1.2bn in collateralised debt obligations (CDOs) which comprised asset-backed securities, including 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 early May 2008, the bank told the ASX that it had provisioned $181m, in respect of its $1.2bn CDO exposure. Two months later, NAB increased its total provision to $1.1bn, or 90% of the value of the CDO’s. That day, shareholders lost millions when NAB’s share price plunged by 13.5%.

NAB shareholder George Vlachos, who lost over $3,000 when the stock price plunged, said that “it was important to me that shareholders take a stand for the principle of continuous disclosure. For the stock market to work, investors have to have confidence in the system”.

“Class actions like this send a powerful message that companies have to keep us informed of what is going on in their business.”

Proceedings commenced in November 2010 against NAB in the Supreme Court of Victoria. The settlement involves a payment of $85m plus an allowance in respect of interest and costs in full and final settlement of the class action, of which $50m is comprised of available insurance proceeds with the remainder substantially covered by existing provisions.

A NAB statement noted that the settlement will have an immediate impact on FY13 earnings, that it has been reached on a commercial basis and that there is no admission of liability by NAB.

Commenting on the settlement, NAB company secretary Michaela Healey stated that NAB had always said that it would vigorously defend the class action, and remains confident about its legal position in the proceedings.

“The settlement of the class action is a purely commercial decision made in the interests of our shareholders. We are pleased to put this matter behind us so that we can continue to focus on improving returns for our shareholders without the distraction and significant expense of a lengthy trial,” she said.

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