Sale of large stock parcels by senior executives can sometimes raise eyebrows. The disposal of 130,000 NAB shares by the National Australia Bank’s CEO (Australia), Ahmed Fahour on November 3 has had precisely that effect.

On 3 November 2008, NAB released a statement to the Australian Securities Exchange stating that director Fahour had sold 130,000 shares and collected a $3.2 million. Fahour received $24.78 per share. It has been reported that the sale of shares was undertaken for “tax reasons”.

One week later, on 10 November, NAB announced that it had launched an institutional placement of shares to raise $2.0 billion to “strengthen its balance sheet and take advantage of growth opportunities.” A few hours later, NAB stated that it had completed the placement of 150 million shares at $20.00 per share – a discount to NAB’s prevailing share price. The capital raising was completed at a 19% discount to the price which Executive Director and CEO of NAB’s Australian business had sold his shares. The difference between what Fahour received from the sale and the current value of those shares is approximately $600,000. (In 2007, Fahour earned cash-based remuneration of $3.44 million along with another $3.4 million of equity payments), making him the second highest paid executive at NAB, trailing only former CEO, John Stewart.)

The Corporations Act states that if a person possesses “inside information” and that person “knows, or ought reasonably to know” that they are in possession of information, they must not “acquire or dispose” relevant financial products. There is no doubt that Fahour disposed of the relevant NAB securities — NAB announced as much on 3 November 2008. Further, there is no dispute that Fahour is an “insider”, given he is a director of the bank. There is of course no breach unless Fahour had “inside information” when he sold 130,000 NAB shares on 3 November 2008. Specifically, he would have had to have knowledge that an impending placement was about to occur.

An NAB spokesperson told Crikey that the bank had “no prospect of a placement taking place until last weekend [8 and 9 November 2008]” and that “conditions changed” such that a placement was able to be undertaken over the weekend. Based on those comments, it appears that at the time Fahour sold $3.2 million of NAB shares, he possessed no “inside information”. The Australian reported on Monday that the sale “went through the normal clearance process involving the chairman, the chief executive and the company secretary”.

NAB’s explanation makes perfect sense – except for one small fact. That is, how was NAB able to undertake a $2 billion placement (which was fully underwritten by Goldman Sachs JBWere, Merrill Lynch and UBS AG) in the space of only three days? Several leading investment bankers told Crikey that it would be highly unusual for a placement (especially one of such a large size) to be arranged in less than a month, with the time lag often extending over several months. This time is required to allow for marketing of the issue to occur and for the underwriters to conduct satisfactory due diligence on the issuer.

Therefore, while the decision to conduct a placement and the terms/pricing of that placement may very well not have been finalised until the 8 November 2008, some have raised doubts as to whether Fahour would have been unaware of any impending placement (or other form of capital raising) being on the cards. A reasonable question could be posed: Exactly when did NAB first consider conducting a placement, and was that knowledge of the impending placement sufficient to lead a reasonable person to expect that it would have a material effect on NAB’s share price?

An ASIC spokesperson refused to comment on whether or not it would investigate the possibility of Fahour’s sale contravened the Corporations Act.

Peter Fray

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