HBOS deal faces legal test
As A Lloyds Banking Group shareholder I arrived back from the International Monetary Fund annual meeting in Washington to receive my first dividend payment in almost a decade.
Far from being a moment of triumph, it was a reminder of how the bank, which once offered the best dividend in the FTsE 100, was laid low by the egotistical takeover of HBOs in 2008, and the subsequent recapitalisation.
Investors and employees have paid a heavy price for the ambitions of former chairman sir Victor Blank and his American chief executive Eric Daniels, and the horror still goes on.
The claim for around £600m of compensation brought by a small group of institutional investors may look like a nuisance.
But the ambulance-chasing litigators Jersey-based Therium, who are taking on the legal risk, are doing the bigger body of shareholders a huge favour. It may seem that the case looks thin and litigants have adopted a scattergun approach.
This includes trying to lay hands on Government documents which shed light on Peter Mandelson’s role as former Trade secretary in nodding through the deal. They also suggest Lloyds bosses should have known the horror that they were buying into when taking on HBOs and explained it fully to shareholders.
Lloyds has been required to hire the big guns, in the shape of Herbert smith and Helen Davies QC (who previously acted for Chelsea owner Roman Abramovich), to defend the action and to finally bring some big players in the financial crisis – Blank, Daniels and Financial services Authority chief executive sir Hector sants – to court.
some of the claims look fanciful. HBOs allegedly was engaged in Libor manipulation. Maybe it was, but that couldn’t have been known at the time of the rescue bid.
Lloyds must be fairly confident of dodging the bullets otherwise it would not be risking the negative publicity which will come with a 14-week court case.
As far as one can tell, the current Lloyds bosses – Lord Blackwell and media-shy chief executive Antonio Horta-Osorio – are in no mood to settle.
Royal Bank of scotland has settled a similar shareholders suit but was much more culpable, having issued a misleading prospectus when it did its rights issue to existing shareholders in spring 2008.
If there is a lingering worry for Lloyds it is that the litigants have found a smoking gun. The suspicion is that Lloyds has not been as honest with stakeholders as it should be.
When confronted with the notion that up to 40,000 jobs could go after the merger Lloyds retreated behind the battlements. That turned out to be an understatement as Daniels, and then Horta-Osorio, engaged in ruthless cost cutting.
There also remain questions about Lloyds’ handling of the victims of fraud at HBOs’s Reading branch. Release of compensation to victims has been slow and, as worrying, there may have been a cover-up over who knew what and when.
Lloyds may be back on the dividend list and raking in oligopoly-style profits. But there are issues of integrity that remain unanswered.
Saudi retreat
AFTER all the hype over an initial $100bn (£75.5bn) public offering for saudi Aramco it looks as if the £1.5trillion privatisation of the century may never happen.
The pet project of Crown Prince Mohammed bin salman was regarded as important enough for the Financial Conduct Authority to create a new category of premium sovereign wealth fund quotation in an effort to entice it to the City. The London stock Exchange and the New York Exchange have been in arm-to-arm combat for the quote.
What has been underestimated is saudi Arabia’s preference for secrecy. Even a premium listing requires Aramco to come up with meaningful earnings data and audited oil reserves. That looks a step too far.
Riyadh is now talking about a potential private offering, with the aim of bringing China in as an investor. But two secretive autocracies ganging up would be a retreat from the regime’s modernisation promises.
Weinstein payday
HARVEY Weinstein may have vanished in a haze of sex allegations but his studios could live on. Private equity firm Colony Capital, which bought Miramax from Weinstein, has opened takeover talks. Capping legal liabilities will be a big sticking point.