Shareholders in Lloyds Banking Group were “mugged” by the bank and five of its former directors during the takeover of HBOS in 2008, the high court has heard.
On the first day of a case which is expected to require former Lloyds chairman Sir Victor Blank and ex-chief executive Eric Daniels to give evidence, the court heard the deal took place amid intervention from the then prime minister, Gordon Brown, to avoid nationalisation of HBOS in September 2008.
The court was told that HBOS might not have been able to open its doors on Monday 29 September 2008 without the emergency loans that the shareholders bringing the claim argue were not properly disclosed at the time they voted through the takeover in November 2008.
Lloyds and five former directors – including Blank and Daniels – are contesting the case brought by almost 6,000 private investors who claim they were not provided with the full details about the financial health of HBOS nine years ago.
Richard Hill QC, acting for the shareholders, told the court on Wednesday that HBOS had been “facing catastrophe” and that Lloyds had been told the rival bank would have had to be nationalised if it did not agree to step in, just days after Lehman Brothers collapsed in September 2008. By October, HBOS was effectively bust, he claimed, after a “massive haemorrhaging of cash”.
“We are saying shareholders were mugged in this acquisition and should never have been kept in the dark,” said Hill.
As well as Blank and Daniels, former finance director Tim Tookey, former head of retail Helen Weir and former head of wholesale banking Truett Tate are named in the case and are scheduled to give evidence. The case is expected to run until March.
Lloyds announced the takeover of HBOS on 18 September 2008. The government eventually took a 43% stake in the enlarged Lloyds Banking Group but no longer owns any shares after selling its final tranche in May.
At the time of the deal, it emerged that Brown had discussed the deal with Blank at a Citibank drinks party just days before it was announced to the market.
“The government was encouraging Lloyds to buy HBOS and to relieve the government of the burden of nationalising HBOS,” said Hill, adding that this left Lloyds shareholders with “catastrophic losses”.
He said that by the end of September, days after the deal was first announced, “HBOS was bust and would have had to close its doors unless it could find an emergency bail out”.
Hill told Mr Justice Norris that Lloyds had been bullied into taking over HBOS by being told that it would need a £7bn bailout in October 2008 – when the government announced plan to rescue the sector – if it did not carry through with the deal.
In correspondence Hill read out in court, a Lloyds banker is said to have described the HBOS deal as “transferring the monkey from theirs to our shoulders”.
Lloyds is scheduled to outline its defence on Thursday and 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 case continues.
