Lloyds Banking Group PLC (LON:LLOY) and five of its former directors “mugged” shareholders during the bank’s ill-fated takeover of HBOS during the financial crisis, the high court heard today.
Richard Hill, the lawyer representing the investors suing the bank, said on the first day of the London trial that senior executives “pursued a dangerous and value-destroying strategy” to push the deal though.
About 6,000 private investors claim they were not provided with the full details about the financial health of HBOS when they voted to approve the takeover on 19 November 2008.
Hill told the court Lloyds had been told HBOS would have had to be nationalised if it did not agree to take it over just days after Lehman Brothers collapsed in September 2008.
He said then Prime Minister Gordon Brown met with former Lloyds chairman, Victor Blank, at a Citibank drinks party in London and invited the bank to buy HBOS, promising to wave away any antitrust issues in a bid to get the deal through quickly. Hill said discussions had also been held between the two in July.
“The government was encouraging Lloyds to buy HBOS and to relieve the government of the burden of nationalising HBOS,” he said. This left Lloyds shareholders with “catastrophic losses , he added.
HBOS was bust but Lloyds withheld information, lawyer claims
At the time “HBOS was facing catastrophic impairment,” Hill claimed.
The deal was announced on 18 September 2008 and just days later HBOS was “bust and would have had to close its doors unless it could find an emergency bail out”, according to Hill.
He said the information that would have disclosed that HBOS was bust was deliberately withheld.
“We are saying shareholders were mugged in this acquisition and should never have been kept in the dark,” he said.
The government had to eventually spend £20.5bn on a 43% stake in Lloyds to bail out the lender.
Lloyds returned to private hands earlier this year after the government sold its remaining shares in the lender.
Hill said an expert witness for the shareholders has estimated £9.4bn in losses for Lloyds from the deal.
Lloyds contests claims
Lloyds and five former directors, including former chairman Sir Victor Blank and ex-chief executive Eric Daniels, are contesting the case.
Other defendants include former finance director Tim Tookey, former head of retail Helen Weir and former head of wholesale banking Truett Tate.
All five former directors are scheduled to give evidence in the case, which is expected to run until March.
"The claimants make a large number of serious, but unfounded, allegations," that are "flawed at every level," the bank’s lawyers said in documents prepared for the trial.
The bank will open its arguments in the case on Thursday.