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Group action case hears of ‘disastrous and catastrophic’ Lloyds/HBOS takeover

By Max Walters

Lloyds’ controversial acquisition of HBOS at the height of the 2008 financial crisis was completed even though it was known that the deal would be ’disastrous’ for shareholders, the first day of a £600 million trial has heard.

In opening submissions at the High Court today lawyers for some 6,000 former shareholders at Lloyds TSB said the deal was pushed through even though the shareholders stood to suffer ‘catastrophic losses’.

After the takeover Lloyds took on a portfolio of bad assets owned by HBOS as well as huge debts. The government bailed out the conglomerate to the tune of £20.3 billion.

The shareholders claim they would never have voted through the deal had they known of HBOS’s financial woes.

Representing the shareholders, Richard Hill QC, of 4 Stone Buildings, said it was well known among directors that HBOS had received a £10bn loan from Lloyds and had been receiving funding of more than £25bn from the Bank of England, yet this was concealed from shareholders.

Hill told the court that HBOS, which was on the cusp of going bust, faced the threat of nationalisation and that it was thought an acquisition would ease the burden of taxpayers. ’What wasn’t considered was the disastrous impact that this would go on to have on shareholders,’ Hill said.

Although Lloyds’ directors prepared papers for shareholders outlining the proposed acquisition this was described as ’spin and sales puff’ that glossed over potential problems and a lack of proper due diligence was carried out as to the potential risks.

Five former directors are expected to give evidence in the coming weeks.

They are: Sir Victor Blank, the bank’s former chair; Eric Daniels, former chief executive; Tim Tookey, former finance director; Helen Weir, former head of retail; Truett Tate, ex head of wholesale banking.

Subjects they are likely to be questioned on include communications with then Prime Minister Gordon Brown and to what extent he encouraged the take over.

A spokesperson for Lloyds, which denies the claims, said: ‘The group’s position remains that we do not consider there to be any merit to these claims and we will robustly contest this legal action.’

The shareholder group is represented by London firm Harcus Sinclair, which specialises in bringing group action cases on behalf of large numbers of individuals and corporate clients. Lloyds is represented by City firm Herbert Smith Freehills.

(Courtesy: Law Society Gazette)