Lloyds forced shareholders into agreeing HBOS deal, court hears

Lloyds bought HBOS in 2008 at the height of the financial crisis

A sign for a Lloyds TSB bank branch, as shareholders begin a High Court battle today for £600 million damages from Lloyds Banking Group. Photograph: Peter Byrne/PA Wire

A sign for a Lloyds TSB bank branch, as shareholders begin a High Court battle today for £600 million damages from Lloyds Banking Group. Photograph: Peter Byrne/PA Wire

 

Lloyds Banking Group mugged shareholders into agreeing to the “catastrophic” HBOS deal struck at the height of the global financial crisis, a lawyer representing thousands of investors suing the bank said on the first day of a London trial.

Senior executives “pursued a dangerous and value-destroying strategy” to push the deal through, Richard Hill, the claimants lawyer, said Wednesday in court. They “withheld or misrepresented” vital information.

The case is the second shareholder lawsuit in London courts this year relating to the financial crisis, which forced the UK government to pledge £1.2 trillion (€1.34 trillion) to support banks.

In June, Royal Bank of Scotland Group reached a last-minute deal with investors as the trial was due to start.

HBOS failed in 2008 and was sold to Lloyds, which then required about £20.5 billion of UK taxpayers’ money to prevent its collapse. The claimants, which include around 300 pension and investment funds, accuse Lloyds of “secretly” making a £10 billion loan facility available to HBOS and that the bank received billions in “covert” financial support from the Bank of England to keep the bank from collapsing while the deal was being negotiated.

The warning signs were present had executives done a proper analysis of the risks and impairment rates HBOS faced which, at the height of the financial crisis, was one the UK’s worst-performing lenders, Hill said.

“HBOS was facing catastrophic impairment,” he said. “Extraordinarily,” the bank’s board did not subject the risks to “any analysis” and in pressing the deal forward “mugged” shareholders into accepting. “The information that would have disclosed that HBOS was a bust bank” was deliberately withheld, Hill said.

The trial, set to run until the beginning of March, will feature ex-chief executive officer Eric Daniels and former chairmen Victor Blank as key defence witnesses. Hector Sants, the former head of the UK financial regulator, is also expected to testify.

-(Bloomberg)