Pre-crisis CDO strife snares CBA

Ian Rogers
Commonwealth Bank will settle a class action over structured financial products dating from the closing phase of the 2000s credit boom. The settlement is worth an estimated A$50 million, The Australian reports.

Gloucester Council and family-owned investment company Clurname were among claimants in the action funded by International Litigation Partners.

The claim turned on an alleged breach by the bank of its duty of care as well as claims of misleading and deceptive conduct in allowing the council and Clurname to invest in the collateralised debt obligations despite both making it clear they wanted conservative investment portfolios.

The newspaper reports the bank was also accused of breaches of the ASIC Act and the Code of Banking Practice for its role in selling the financial products in the form of CDOs named "Paladin", "Pure" and "Oasis" between January 2006 and December 2007.

It was alleged the bank acted as both the arranger and seller of the CDOs, and that a conflict of interest emerged.

It was also alleged that the bank was acting as a financial adviser to the council and Clurname without disclosing the risks of the products it was selling to clients.

The class action eventually attracted about 35 investors who are now set to settle for 32.5 per cent of the $140 million in losses sustained in the sale of the notes — in some cases 100 per cent of their investment.