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RBS averts trial but Lloyds faces court over ill-fated takeover of HBOS

Last updated: 16:10 07 Jun 2017 BST, First published: 08:26 07 Jun 2017 BST

Lloyds is struggling to rid itself of legal woes and misconduct claims
Lloyds is struggling to rid itself of legal woes and misconduct claims

Royal Bank of Scotland Group plc (LON:RBS) has put its rights issue saga to bed but now the spotlight turns on Lloyds Banking Group (LON:LLOY) over its ill-fated rescue of HBOS.

Investors are suing Lloyds on claims management withheld information about the perilous financial state of HBOS before it was taken over by the bank in 2008.

The acquisition of HBOS by Lloyds TSB, which created Lloyds Banking Group, crippled the bank and led to the government’s £20bn bailout during the financial crisis.

Lloyds and its former directors are due to appear in court over the rescue deal on 2 October and it is expected to last 12 weeks.

The Lloyds/HBOS Shareholder Action Group, comprising 6,000 former Lloyds TSB investors, is seeking between £300mln and £350mln in damages.

Lloyds has denied any wrongdoing, saying it does “not consider there to be any merit to these claims and we will robustly content this legal action”.

Former chief executive, Eric Daniels, and ex-chairman, Victor Blank, are due to take the witness stand when the case goes to trial. Three other former directors, including Helen Weir, who is now Marks & Spencer’s finance chief, are also defendants in the lawsuit.

Lloyds continues to wrestle with troubled past...

Current chief executive Antonio Horta-Osorio, who joined Lloyds in 2011, has sought to put the bank’s troubled past behind it. Under his leadership, he has turned around the business by cutting costs, offloading toxic loans and tackling its payment protection insurance mis-selling scandal. 

In February, Lloyds reported its highest full year pre-tax profit in a decade and again impressed investors in April with a strong first quarter. 

Last month the government offloaded its final stake in Lloyds almost a decade after its rescue deal in which it bought a 43% holding in the bank.

Lloyds said the successful sale of the stake returned more than £21.2bn to the taxpayer, including more than £400mln in dividends. This amounted to £894mln more than the government paid for its interest.

But Lloyds still has some skeletons in its closet. The trial over the HBOS acquisition looms while the bank is also wrestling with a fraud case.

Noel Edmonds condemns Lloyds over payout scheme for HBOS Reading fraud victims...

The bank has set aside a £100mln provision to reimburse victims of fraud at HBOS's Reading branch. Struggling businesses lost about £245mln after former bankers of HBOS siphoned off money from their investments to fund lavish holidays.

Six people were jailed, including two former HBOS employees, earlier this year for the fraud.

Lloyds has said it will make compensation payments to victims by the end of June. The scam took place between 2003 and 2007 before Lloyds bought HBOS.

TV star Noel Edmonds is seeking £73mln in compensation over claims the fraud caused the demise of its Unique business empire and damaged his reputation. The former host of Deal of No Deal has criticised Lloyds for taking too long in making compensation payments. He made his claim on 21 April. 

His lawyers, Keystone Law, called the bank’s proposed compensation scheme a “sham” in a letter to Professor Russel Griggs, who is reviewing the level of payments claimants should receive.  They also claimed that Griggs lacked the financial expertise to ensure compensation payments were fair and that Lloyds was interfering in the review.

A Lloyds spokesman said: “We have appointed Professor Russel Griggs as the independent reviewer in the HBOS Reading customer case review. Part of his role is to agree the individual case outcomes, and to ensure that these outcomes are fair. He will make his decisions independently.

“As part of the review we have asked customers to provide their own input and where we receive this input it will be considered by the independent reviewer. We have also said that we will pay customers for the necessary costs of participating in the review.”

On top of this, Lloyds is still tackling claims for mis-sold PPI. In March it set aside a further £350mln to cover the PPI claims after the Financial Conduct Authority extended its deadline for making new complaints to August 2019. The bank’s total bill so far amounts to £17.4bn.

RBS averts trial over rights issue...

The upcoming trial on the HBOS acquisition comes hot on the heels of RBS’s settlement with investors suing the bank over its £12bn cash call in 2008.

RBS has spent more than £1bn in legal fees and out-of-court settlements with shareholders in order to avert an embarrassing trial over the rights issue.

Investors claimed RBS misled them over the bank’s financial state before the share sale, which was supposed to prop up the lender following its disastrous €71.1bn takeover of Dutch ABN Amro in 2007 but led to a rescue deal funded by taxpayers.

The government had to inject £45.5bn in a bailout shortly after the rights issue and still owns more than a 70% stake in the bank.

Claimants lost about 80% of their investments in the cash call.

The RBoS Shareholders Action Group, which represented the remaining 13% of investors suing the bank, announced yesterday they would be accepting a £200mln settlement offer from the bank at 82p per share.

The settlement offer was more than double the amount originally proposed by RBS but far less than the 200p-230p investors paid during the cash call.

RBS had already paid out about £700mln to the first 87% of claimants, most of which accepted a settlement offer of just 41p per share.  

The lender also ran up a legal bill of at least £100mln. Still, these legal expenses were expected to increase by a further £25mln if the case went to trial.

Fred Goodwin ducks witness stand...

The settlement means former disgraced chief executive Fred Goodwin has managed to avoid court room scrutiny over his role in the events leading up to the rights issue.

Goodwin was ousted as the bank’s boss after its bailout. He has not spoken publicly about the bank’s breakdown since February 2009 when he appeared before the Treasury select committee and apologised for “all the distress that has been caused”.

The decision by claimants to accept the final settlement offer came despite thousands of die-hard investors wanting to pursue a trial. They were holding out for an offer of at least 92p per share.

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