Lloyds spent £8billion on HBOS even though bosses knew bank had ‘no value’
AN executive at Lloyds TSB warned that HBOS was ‘valueless’ just days before the bank bought the stricken lender for almost £8billion during the financial crisis.
Documents submitted to the Royal Courts of Justice as part of a £350million class action lawsuit against the bank have revealed that bosses discussed the deal during a meeting on October 10, 2008.
During the meeting, Archie Kane – then a main board director of Lloyds TSB – scribbled a note, saying: ‘Willing to go forward…. but no value left in HBOS.’ Just three days later, with the markets in turmoil, Lloyds bought HBOS for £7.7billion, despite performing only cursory checks on HBOS’s books.
As a result of the deal, Lloyds shareholders say the value of their investments dropped by around £1 per share. They are now trying to claim that money back from the bank, with more than 6,000 shareholders who saw their savings wiped out joining forces in a lawsuit.
They believe that Lloyds and its directors failed to act in investors’ best interests, because they did not fully disclose how risky HBOS’s finances were in November 2008 when they sent out a document about the takeover.
As part of the legal proceedings, the court ordered five of the bank’s former bosses to submit all their emails and letters discussing the
‘This was terrible for shareholders’
deal. Among the reams of correspondence, the handwritten note saying HBOS no longer ‘had value’ has been seized on by lawyers pursuing the case against Lloyds and its former management.
The admission sheds new light on one of the most disastrous takeovers in UK corporate history, which triggered the near collapse of Lloyds and a £20.5billion bailout from British taxpayers.
The bank has since racked up more than £40billion in losses from risky loans made by HBOS to households and companies before the financial crisis.
The note also heaps fresh embarrassment on former prime minister Gordon Brown, who helped broker the deal and waive competition rules which would normally have blocked the merger of two of the country’s biggest lenders.
Yesterday Philip Meadowcroft, a small shareholder who has joined the lawsuit, said: ‘The evidence ... is explosive and reinforces my suspicion that this was a terrible deal for us shareholders and the directors were fully aware of this fact.’
But a witness statement from former boss Eric Daniels denied Mr Kane really meant that HBOS was worthless. Instead, he argued, the words ‘ no value’ meant Mr Kane thought the deal would not be beneficial for Lloyds unless it negotiated a lower price.
A Lloyds spokesman said: ‘The group’s position remains that we do not consider there to be any legal basis to these claims.’
The news comes as City watchdog the Financial Conduct Authority prepares to publish a longawaited report on the collapse of HBOS, which is expected to be highly critical of former executives as well as regulators.
Yesterday Mark Garnier, a Tory on the Treasury select committee, said: ‘ When the HBOS report is published we will certainly want to look into this note.’