Court told Lloyds had ‘mugged’ its shareholders

● High Court told key information on target bank’s true financial state withheld

One of Britain’s biggest banks has been accused of “mugging” its shareholders in convincing them to press ahead with the illfated acquisition of HBOS at the height of the financial crash.

The high court in london heard yesterday that Lloyds shareholders had been “kept in the dark” about the “bust” financial state of HBOS as a £550 million investor lawsuit was launched.

Lloyds shareholders were “mugged” when the bank recommended its disastrous acquisition of HBOS in the financial crash, the High Court in London heard yesterday, on the first day of a £550 million investor lawsuit.

Shareholders were “kept in the dark” about secret financial lifelines to HBOS from the Bank of England, the US Federal Reserve and Lloyds itself as the bank was essentially “bust”, legal counsel for the Lloyds/hbos Shareholder Action Group claimed.

Richard Hill QC told Mr Justice Norris that investors were also not made aware in the acquisition circular in late 2008 of massive potential loan impairments (ie, bad debts) that Lloyds’ then-management had identified at the target bank.

In October 2008, Lloyds’s risk management arm estimated potential HBOS impairments of between £15 billion and £21bn at the higher end, the claimants said in their written opening submission.

Hill branded the shareholder circular therefore “highly misleading” and incomplete as to HBOS’S true financial state of being “on life support”.

He said: “The information that would have disclosed it was a bust failed bank was omitted deliberately.”

About 6,000 Lloyds shareholders – including 300 institutional investors – are seeking damages from five former Lloyds executives, including former chief executive Eric Daniels and ex-chairman Sir Victor Blank, as well as the bank itself.

The other directors named in the action are former chief financial officer Tim Tookey; Helen Weir, the one-time director of Lloyds’ retail banking arm; and George Truett Tate, the ex-wholesale banking director.

The claimants say the directors withheld from Lloyds shareholders the fact that HBOS was in receipt of £25.6bn of “covert” emergency liquidity assistance (ELA) from the Bank of England, $14.5bn from the US Federal Reserve, and a confidential £10bn loan from Lloyds itself.

“We say that shareholders were mugged on this acquisition,” Hill said. “They should never have been kept in the dark on ELA.

“HBOS was bust and would have had to close its doors if it could not access an emergency bailout.”

Hill said that HBOS’S £4bn investor rights issue in July 2008 after financial wholesale markets – on which it was highly dependent for funds – had tightened up was a “spectacular flop”. More than 90 per cent of shares were left with the underwriters. The QC acknowledged that Blank and Daniels had come under political pressure, with initial approaches made to the Lloyds chairman by then-prime minister Gordon Brown, to mount a rescue of HBOS after the failure of Northern Rock a year earlier.

But he added: “That was pressure they were perfectly capable of resisting.” Lloyds was saddled with toxic assets and had to be rescued with a £20.3bn taxpayer bailout.