Court’s secret hearing over HBOS rescue

Judge rules evidence on toxic bank takeover must be given behind closed doors

A CITY regulator will give crucial evidence about Lloyds’ disastrous HBOS takeover in secret – meaning details of the deal could remain hidden.

Former Financial Services Authority boss Sir Hector Sants is due to appear in a High Court case over Lloyds’ £12bn acquisition of failing HBOS in 2008 as the financial crisis raged. Just months after the acquisition, Lloyds was forced to beg taxpayers for a £20.5bn bailout.

Around 6,000 shareholders are suing Lloyds and five former directors for up to £600m, claiming it should never have bought HBOS and sought to mislead investors over the value of the merger.

Evidence from Sants ( pictured) about the run-up to the deal could prove vital and will shed light on why the Establishment was desperate for it to go ahead.

But the 61-year-old – now vice chairman at global consultancy Oliver Wyman – has been granted special permission to give his evidence in secret, with the Press and public excluded from the courtroom.

Even the fact this deal exists was itself previously a secret, and can only be revealed today after the Mail and a group of other news organisations sought to have it overturned.

The court would not reveal why the order had been made.

Sants’s evidence is likely to include reference to documents which the Government has long sought to keep from public view.

They reveal conversations between the Treasury, FSA and Bank of England as the markets teetered on the brink of collapse and HBOS struggled to stay afloat.

The role played by ministers and watchdogs is key to the court case, with the claimants’ lawyers suggesting that Lloyds came under heavy pressure to buy what was essentially a tainted asset.

Along with the bank, they are also suing former chief executive Eric Daniels, ex- chairman Sir Victor Blank and three other sen- ior figures. The shareholders’ barrister Richard Hill QC has accused Daniels of carrying out a ‘sales job’ on his own board to persuade them the takeover was a good idea.

Hill added that the group ‘massaged away’ problems in meetings with non-executive directors who raised concerns. In reality, he said, HBOS was toxic enough to bring Lloyds down.

As hearings began last week, Hill said: ‘We are saying shareholders were mugged in this acquisition and should never have been kept in the dark.’

Lloyds argues the case is ‘fun- damentally flawed at every level’. The bank’s lawyers added that the acquisition took place in extremely challenging market conditions and, by necessity, over a relatively short period of time during which the general economic situation changed radically and rapidly.