NAB has settled a lawsuit over failing to disclose its subprime investments exposure. Photo: Glenn Hunt
NATIONAL Australia Bank has agreed to pay $115 million in a landmark class action settlement over the bank's exposure to collateralised debt obligations during the global financial crisis.
The settlement is a fraction of the $450 million lost by shareholders in July 2008, when NAB revealed it was forced to write down $1 billion from its exposure to risky instruments.
NAB has denied any liability over the claim, saying the settlement had been reached on a ''commercial basis'' only.
The lawsuit, launched in late 2010, claimed NAB had failed to diligently disclose the true extent of its exposure to the toxic subprime investments.
Maurice Blackburn, which led the action on behalf of 15,000 individuals and businesses, said the settlement was the largest by a company of NAB's size.
''This sends a message to all Australian companies that no matter how big they are, they have an obligation to keep their shareholders informed,'' class actions principal Jacob Varghese said.
Mr Varghese defended the size of the settlement compared to the losses incurred.
''This was a very hard fought case by the bank.''
He said the class action was a result of inaction by corporate regulators.
''This is a case where the public regulators, for whatever reasons, didn't decide to take any action.''
NAB made a first provision of $181 million against the CDO portfolio on May 9, 2008, and announced a second provision of $830 million on July 25 that year.
The announcement pushed the bank's share price down by 13.5 per cent.
The CDOs had a heavy exposure to the sub-prime residential mortgage market in the US.
NAB's company secretary, Michaela Healey, said in a statement: ''We have always said we would vigorously defend the class action and we remain confident about our legal position in the proceedings.''
The settlement involves a payment of $85 million plus some $30 million in costs and interest.
Of the total, $50 million is expected to be covered by insurance.
The bank said the settlement will have an ''immaterial impact'' on earnings. The settlement comes less than a month before the case was due to go to trial in the Victorian Supreme Court.
Fees to Maurice Blackburn of $12.5 million are deducted from the settlement, as are fees to litigation funder International Litigation Funding Partners which gets as much as 40 per cent, depending on each person's claim.