Big corporations should take note of a $115 million settlement of a class action against the National Australia Bank (NAB), law firm Maurice Blackburn says.
About 15,000 NAB shareholders took legal action against NAB after it sustained heavy losses related to toxic subprime home loans in the United States.
NAB on Friday said it would pay $85 million to settle the case, pending court approval.
Law firm Maurice Blackburn, which led the case against NAB, said the total amount payable was $115 million, including interest and costs.
“It’s the biggest company in Australian history to pay a class action settlement of this size: over $100 million,” Maurice Blackburn principal Jacob Varghese told reporters.
“In that sense, we think it sends a message to all Australian companies, no matter how big they are, that they do have an obligation to keep their shareholders informed of important material information, and that shareholders are willing and able to seek compensation where something goes wrong.”
NAB shareholders sought damages after a sharp fall in the bank’s share price in July 2008.
In 2006, NAB had bought $A1.2 billion of collateralised debt obligations (CDOs) that were heavily exposed to the US subprime residential mortgage market, which became toxic debt in 2007 and early 2008, according to Maurice Blackburn.
NAB first made a $181 million provision for the CDO exposure in May 2008, then increased it to $1.1 billion two months later, sending the company’s share price plunging by nearly $6.00.
The NAB shareholders claimed the bank knew, or should have known, it would suffer material losses on its CDO portfolio by at least as early as January 1, 2008.
They also claimed NAB should have shared the information with shareholders.
NAB said on Friday the settlement did not indicate an admission of liability by the bank and it was purely a commercial decision.
The settlement would have an immaterial impact upon its earnings in the current financial year, NAB said.
Mr Varghese said if Australia were to maintain a functioning stock market, investors needed to be confident the information they were given by companies was accurate and complete.
Of the $115 million settlement, legal costs would account for around $12.5 million, and the litigation funder which supported the case would get about 30 to 40 per cent, depending upon each person’s claim, he said.
Sydney small businessman George Vlachos, who was one of the plaintiffs in the action, described the settlement as “a good day for investors”.
“Companies need to take note that investors want to make decisions based on accurate information,” he said.
Mr Vlachos declined to say how much money he had lost as a result of the fall in value of NAB shares or how much of his loss would be covered by his share of the settlement.
“There’s obviously a capital loss where the asset you buy evaporates literally overnight, so it does place your business under pressure,” he said.
