LONDON, Oct 18 (Reuters) - Former bosses of Lloyds Banking Group used “spin and sales puff” to win over investors and secure a “disastrous” acquisition of rival HBOS during the credit crisis, a lawyer for thousands of shareholders told London’s High Court on Wedesday.
Around 6,000 Lloyds investors, who are seeking around 550 million pounds ($724 million) in damages, allege that five former directors at Lloyds, including ex-CEO Eric Daniels, concealed information about HBOS’s financial position in 2008 and 2009 and breached their duties by recommending the purchase.
On the first day of a 14-week London trial, the claimant’s lawyer Richard Hill told the court that the deal saved HBOS from nationalisation but looked like a catastrophe for Lloyds within days of completion in early 2009.
“We say shareholders were indeed mugged,” Hill said, adding that former Lloyds executives such as Daniels also glossed over severe problems with HBOS’s liquidity and corporate loan portfolio when presenting the case to the board.
Lloyds, Britain’s largest retail bank, and the individual defendants, who include former chairman Victor Blank, Tim Tookey, the former finance director, Helen Weir, the former head of retail and Truett Tate, the former head of wholesale banking, deny any wrongdoing.
“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 bank said in a statement. All defendants are being collectively represented by Lloyds lawyers.
It is the second British investor lawsuit against a bank stemming from the credit crisis - and the first to go to trial. Royal Bank of Scotland reached an out-of-court settlement over a 2008 cash call shortly before a trial scheduled in June.
HBOS, formed from the merger in 2001 of former English building society Halifax and the 300-year-old Bank of Scotland, was close to collapse in 2008 after the failure of Lehman Brothers caused money markets to seize up, meaning HBOS could not get the funding it needed for its ballooning loan book.
Lloyds shareholders allege the subsequent government-brokered takeover of HBOS, that valued the struggling bank at around 5.9 billion pounds, wiped billions off the bank’s market value. Lloyds itself then had to be rescued with a 20.5 billion- pound government bailout in 2009.
Investors allege Lloyds secretly loaned HBOS 10 billion pounds in 2008 so it could continue trading and that the bank’s directors did not disclose that HBOS was receiving emergency support from the Bank of England and the U.S. Federal Reserve, which peaked at about 25.6 billion pounds and $18 billion respectively.
Hill said Daniels and Blank were put under pressure by the government in 2008 to rescue HBOS but owed their allegiance to LLoyds shareholders.
Lloyds, which has returned to profit and emerged from state ownership in May, denies the claims and says the bank and the ex-directors all acted properly. ($1 = 0.7595 pounds) (Editing by Rachel Armstrong, Greg Mahlich)