MENU

NAB takes on Wall Street giant for $230 million

The National Australia Bank (ASX: NAB) has filed an arbitration claim that alleges Wall Street investment bank Goldman Sachs (NYSE: GS) misled the Aussie bank into purchasing Collateralised Debt Obligations (CDOs).

Some believe that CDOs, which are essentially pooled debt that has an asset secured to it, was a major reason the GFC hit financial markets as hard as it did. They were structured, marketed and sold as high-return, low-risk investments that bet with or against the underlying asset, in NAB’s case it was the US housing market.

The particular CDO that is alleged to have lost millions of insurers’ and investment companies’ dollars, called ‘Hudson 1’, was sold to investors by Goldman, but the company didn’t disclose that the firm was also betting against the market. NAB claims that the investment bank’s actions were essentially common-law fraud. It added that many individuals are to blame for implementing the offer of CDOs, but addressed its claim to Goldman in general.

One of the four men who have appeared numerously in similar court cases was quoted as saying “during the early summer of 2006 it was clear that the market fundamentals in subprime and the highly levered nature of CDOs [were] going to have a very unhappy ending”.

NAB’s claim is expected to be resolved within 18 months as others have been before. To date, three similar cases have been filed against the investment bank, two have been thrown out by judges and one was settled for a payout of $550 million.

Foolish takeaway

Goldman Sachs is in a position similar to many other investment banks that have survived the GFC. NAB obviously sees an opportunity to redeem some lost capital, however, investors should remember that the company is valued at approximately $67 billion and the outcome will not affect the company’s balance sheets in the long term. With a stable 6.4% dividend, NAB is still very attractive for income-seeking investors.

In the market for high-yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.