Lloyds shareholders ‘mugged’ by HBOS deal, high court told 2 hours ago Lloyds shareholders were “mugged” by the bank on its acquisition of HBOS, it was claimed in the High Court at the start of a blockbuster trial which is set to rake over Lloyds’ disastrous acquisition of HBOS in 2008. The £550m court case has been brought by 6,000 investors who are suing Lloyds Banking Group and five former directors over the decision to acquire HBOS at the height of the banking crisis. HBOS was rescued by Lloyds in September 2008 just after Lehman collapsed. The prime minister Gordon Brown reassured Sir Victor Blank, the then chairman of Lloyds that the government would waive competition hurdles if Lloyds were to acquire HBOS. Lloyds and the ex-directors deny any wrongdoing and are vigorously defending the civil case. Richard Hill QC, representing the shareholders, told the High Court on Wednesday that the HBOS deal had been “disastrous” for investors. “What we are saying is that Lloyds shareholders were mugged on this acquisition and …kept in the dark…disclosure was not made by the Lloyds board,” he told the court.
Mr Hill claimed that shareholders were not given information about HBOS’s parlous financial state prior to the deal – in particular the huge bad debts in its corporate lending division and its wholesale funding issues. He told the court that the “catastrophic levels of impairments” in HBOS’s corporate bank were not subject to proper analysis by Lloyds and this gave a “misleading impression” of future bad debt impairments. Lloyds shareholders ‘mugged’ by HBOS deal, high court told 18/10/2017 16:46 https://www.ft.com/content/ed6b0d2a-e4eb-333c-bfd2-eac743c4b2fc Page 2 of 3 He also told the court that by October 2008, HBOS was a “bust, failed bank” and was facing nationalisation. It was unable to fund itself and was on “life support from the Bank of England and Lloyds” but this information was “omitted deliberately” from the circular given to shareholders to vote through the deal in November 2008. He told the court that Northern Rock had collapsed the year before but by 2008 “HBOS was in the same position as Northern Rock” and could not meet its obligations and had to seek emergency assistance from BoE. “The difference was…the assistance was kept secret from the markets. Lloyds directors did know and knew the funding was provided as part of a joint rescue package..,” Mr Hill claimed. The investors allege that £25bn of emergency support from the Bank of England and $18bn from the US Federal Reserve was not disclosed in the prospectus outlining the HBOS deal. They also claim Lloyds “secretly” gave HBOS a £10bn loan facility to enable the stricken bank to pay its debts as they fell due. “Shareholders have suffered catastrophic losses from the acquisition and hold defendants responsible..” Mr Hill told the court. He claimed to the court that Eric Daniels, then chief executive, did a “sales job” on the non executives to help sell the HBOS acquisition and Mr Daniels gave a “very partial and misleading picture of the deal.” HBOS suffered huge impairments in 2009 and Lloyds had to raise fresh capital in 2009. Sir Victor Blank was later ousted from the bank.
The trial, which will last until March, is set to see five senior ex-Lloyds executives — including Eric Daniels, former chief executive, and Sir Victor Blank, ex-chairman — facing cross-examination in open court by top barristers. In its written defence Lloyds claims that the shareholders’ case ” is flawed at Lloyds shareholders ‘mugged’ by HBOS deal, high court told 18/10/2017 16:46 https://www.ft.com/content/ed6b0d2a-e4eb-333c-bfd2-eac743c4b2fc Page 3 of 3 every level”. It says the allegations are “entirely devoid of merit” and even if it could be proved there was liability on the part of the ex-director defendants “they would not be able to prove that the director defendants’ wrongdoing caused them any loss.” It says that Lloyds board “undertook a careful and through process in reaching the decision to recommend the acquisition..” The bank had extensive discussions with the FSA and professional advisors about the deal and the allegations against the directors are “not supported by any factual basis and should never have been made,” the bank claims. The case continues.