Australia's NAB faces class action on toxic debt

November 18, 2010 | 14:57

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A 450-million-dollar lawsuit was brought against National Australia Bank Thursday by shareholders claiming it failed to properly disclose its exposure to toxic US debt during the financial crisis.

The class action, involving about 250 institutional and retail investors, relates to a massive plunge in NAB's shares in July 2008 after it revealed a marked deterioration in investments linked to US sub-prime mortgages.

NAB's share price dived almost 20 per cent in three days after the announcement of an $830 million charge related to the portfolio, just two months after a $181 million hit on the same investments.

Maurice Blackburn, the firm bringing the lawsuit, said NAB had information to suggest the sub-prime market was unravelling as early as 2006 and its failure to adequately warn investors caused enormous losses.

"Maurice Blackburn says that by January 1, 2008 it was evident to anyone following these sorts of collateralised debt obligations that there was a serious exposure and a serious risk of losses," said Maurice Blackburn principal Andrew Watson.

"NAB should have revealed the extent of that exposure on January 1, 2008. It didn't."

Watson said investors were seeking $450 million in losses in the case, which was filed Thursday in the Victorian Supreme Court.

"Our case is that the objective evidence is simply inconsistent with NAB's proposition that all of this emerged in two months of deterioration between May and July of 2008," he said.

NAB and Australia's other three major banks are already facing a consumer revolt over rising interest rates and fees, with thousands expected to join a separate class action for alleged fee gouging.

The government has also lashed the banks, vowing sweeping reforms as it accuses major lenders of greed and arrogance.

AFP

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