Shareholders suing Lloyds Banking Group PLC (LON:LLOY) over the takeover of HBOS claim the bank’s former risk officer had initially refused to sign off on a £10bn loan facility to support the rescue deal.
Court documents allege that Carol Sergeant had hesitated to sign off on the loan facility to help Lloyds rescue HBOS at the height of the 2008 financial crisis due to concerns about the transaction, the Financial Times reported.
Some 6,000 investors are suing Lloyds and five former directors, including ex-chief executive Eric Daniels, on claims they were misled into approving the acquisition of HBOS as information was withheld, including details of emergency support from the Bank of England and Federal Reserve.
Lloyds allegedly failed to disclose loan facilty
The £600mln lawsuit claims Lloyds failed to disclose that it handed HBOS the loan facility in early October 2008 to keep the struggling lender from collapse and to pay its debts.
“The fact that Lloyds was granting or had granted a £10bn loan facility to HBOS was at all material times treated as secret by Lloyds and the knowledge of the transaction was limited to a relatively small group of people,” the claim alleges.
Sergeant, who left Lloyds in 2010, had directly expressed her concerns about the transaction to Daniels, the court documents allege.
It is also claimed that she said in an email on September 25, 2008 that she failed to understand why Lloyds was looking to lend against what seemed like some “very illiquid assets”. In addition she highlighted worries that HBOS was “exporting their liquidity problems to us before consummation and in such extraordinarily difficult markets”.
READ: Former Lloyds CEO Eric Daniels sues for unpaid bonuses
A month later she wrote an email to Daniels and Truett Tate, who ran the bank’s wholesale division, saying that granting the loan facility to HBOS made it look like it was part of the systematic rescue package and that she wanted the Financial Services Authority (FSA) to “explicitly endorse the transaction and all of its risks”.
Sergeant, who is not a defendant in the lawsuit, allegedly signed off on the transaction after Tate spoke to senior FSA figures including Sir Hector Sants, then FSA chief executive about the loan facility.
Lloyds denies claims
Lloyds insisted in its defence filing that its former directors had acted properly at all times and that the loan facility was disclosed and had been covered in press reports. The lender added that the loan was not part of a systematic rescue deal, rather the terms were commercial and made at "arm's length".
Lloyds claims that while Sergeant was initially reluctant to sign off on the loan facility, she had stated in her email in September that she accepted she was “not fully briefed at all and only seeing part of the picture and can’t get hold of Truett today”.
Lloyds 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."