On the first day of a case which is expected to require former chairman Sir Victor Blank and ex-chief executive Eric Daniels to give evidence, the court heard the deal took place amid intervention from the then prime minister Gordon Brown to avoid nationalisation of HBOS in mid-September 2008.
Lloyds and five former directors – including Blank and Daniels – are contesting the case brought by almost 6,000 private investors who claim they were not provided with the full details about the financial health of HBOS when they voted through the takeover in November 2008.
Richard Hill, QC for the shareholders, told the court that HBOS was “facing catastrophe” and that Lloyds had been told HBOS would have had to be nationalised if it did not agree to take it over just days after Lehman Brothers collapsed in September 2008. By October, HBOS was effectively bust, he claimed, after suffering a “massive haemorrhaging of cash”.
“We are saying shareholders were mugged in this acquisition and should never have been kept in the dark,” said Hill.
As well as Blank, Daniels, the former finance director Tim Tookey, former head of retail Helen Weir and former head of wholesale banking Truett Tate are defendants and are scheduled to give evidence in the case, which is expected to run until March.
Lloyds announced the takeover of HBOS on 18 September 2008 and the terms of the offer were lowered the following month when the government announced a bailout for the wider banking sector. The taxpayer eventually took a 43% stake in the enlarged Lloyds Banking Group but no longer owns any shares after selling them off earlier this year.
At the time of the deal, it emerged that Brown had discussed the deal with Blank at a Citibank drinks party just days before it was announced to the market. Brown pledged not block the transaction on competition grounds and Hill said discussions had also been held between the two in July.
“The government was encouraging Lloyds to buy HBOS and to relieve the government of the burden of nationalising HBOS,” said Hill, leaving Lloyds shareholders with “catastrophic losses”.
By the end of September – days after the deal was first announced – “HBOS was bust and would have had to close its doors unless it could find an emergency bail out”, Hill said.
He said life support was provided from the Bank of England and Lloyds, whose shareholders voted through the deal in November 2008 without knowing that HBOS was a “bust, failed bank”.
“What the [Lloyds] directors knew, that the market did not know, is that HBOS had suffered a funding crisis,” Hill told Justice Norris in front of a packed courtroom, including private investors who are bringing the case.
Since leaving Lloyds, Daniels has taken roles at the peer-to-peer lender Funding Circle, the Mayfair-based investment bank StormHarbour and the private equity firm CVC Capital Partners. Weir is Marks & Spencer’s finance director and Tookey is in the same role at Old Mutual Wealth.
An expert witness for the shareholders has put the losses for Lloyds from the deal at £9.3bn, Hill said.
Lloyds is scheduled to outline its defence on Thursday.
This article was written by Jill Treanor, for theguardian.com on Wednesday 18th October 2017 14.19 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010