Lloyds Reaches Last Leg of Crisis-Era Clash Over HBOS Takeover

(Bloomberg) -- Lloyds Banking Group Plc has entered the final stretch of a months-long court battle with shareholders over its fateful purchase of failing HBOS at the height of the financial crisis. But both sides will have to wait even longer for a verdict.

About 6,000 retail and institutional investors sued for 600 million pounds ($827 million) claiming the bank and its executives deliberately misled them to win approval for the HBOS takeover by failing to reveal the true extent of its catastrophic financial position.

The trial, which brought ex-CEO Eric Daniels and former chairman Victor Blank to testify, is due to end on Monday, as both sides finish their closing arguments. Nearly a decade after the HBOS deal was done, Lloyds and its shareholders could have to wait as long as three months for a final ruling.

HBOS failed in 2008 and was sold to Lloyds, which then required about 20.5 billion pounds of U.K. taxpayers' money to prevent its collapse. The claimants, which include around 300 pension and investment funds, accuse Lloyds of "secretly" making a 10 billion-pound loan facility available to HBOS and say that the bank received billions in "covert" financial support from the Bank of England and the U.S. Federal Reserve.

Lawyers for the investor group, which also includes pensioners who said they had seen the Lloyds shares as a safe retirement holding, claimed the lender didn't give shareholders the information they needed and criticized it for being "wholly unapologetic" for its behavior at the time.

The bank “needs to understand what its duties to its shareholders are,” Richard Hill, a lawyer for the claimants, told the London court on Wednesday.

‘Hindsight'

Helen Davies, a lawyer for LLoyds, said on Friday the claimants' view is one “they're expressing with the benefit of hindsight.” The Lloyds Group “could not reasonably have foreseen the scale of the recession in the second half of 2008 and 2009,” its says in its court filings.

During the trial, Lloyds painted HBOS as a deal too good to miss.

“When the government indicated that it would be willing to do what it could to assist in waiving the competition restrictions and permit Lloyds to acquire HBOS, they considered this to be a one-off opportunity,” Lloyds' court filings said.

Lloyds rejected any accusation of wrongdoing in its representation of the deal to shareholders and said the due diligence it did prior was “adequate” and indeed “more extensive than normal.”

“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,” Lloyds said in an emailed statement.

A representative for the claimants didn't immediately respond to a request to comment.

--With assistance from Jeremy Hodges

To contact the reporter on this story: Hannah George in London at hgeorge13@bloomberg.net.

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Peter Chapman, Paul Armstrong

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