Law firm IMF Bentham Ltd (ASX: IMF) has dropped 5.4% to $1.94 this afternoon after announcing its class action against Australia and New Zealand Banking Group (ASX: ANZ) had been effectively thrown out by a Federal Court of Appeal.
The Court of Appeal's decision reverses an original decision that late fees on credit cards are penalties. The verdict will come as a blow to the pride of IMF and is also likely to leave a large hole in investors' pockets.
The litigation funder said it expects to write off around $4 million from its intangible assets as at June 30 2015, while creating a provision for adverse costs of around $1.5 million.
Litigation funding is a high stakes business where law firms are unlikely to fund claims unless they have a high expectation of success because failure is costly. The one hope for IMF Bentham investors is an option to apply to appeal the verdict in the High Court. The High Court's verdict in any theoretical appeal would also have downstream consequences for IMF Bentham and Australia's big banks.
Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have also been in the sights of litigation funders over the issue of exception and penalty fees they charge consumers.
Today's verdict may or may not be a pointer as to the likelihood of success in similar claims and the impact on ANZ's share price is immaterial given its $100 billion-plus market value.
However, these kinds of verdicts and share price swings come with the territory when investing in IMF Bentham, while others like Slater & Gordon Limited (ASX: SGH) also have significant class action practices. You don't need to be a hot-shot lawyer to get rich though, you just need to find quality stocks on attractive valuations and let them do the hard work for you!
