High court hears Lloyds shareholders’ £600m claim for compensation described as ‘legally unprecedented’ and ‘fundamentally flawed’
The acquisition of HBOS was a “unique opportunity” for Lloyds Banking Group and regarded by its directors as in shareholders’ best interests, the high court has been told.
Helen Davies, QC for Lloyds, opened the bank’s defence on Thursday by telling the court that a £600m claim for compensation by disgruntled investors was based on “myths and misconceptions” and that the deal was undertaken after advice from a list of advisers which ran to 50 pages.
The Lloyds shareholders claim, among other things, that they were not given a true picture of the financial health of HBOS when they voted through the deal in November 2008 and did not know it was a “bust bank” supported by loans from the Bank of England and from Lloyds itself.
Around 6,000 shareholders are making their claim against Lloyds and five of its former directors – including the former chairman Sir Victor Blank and ex-chief executive Eric Daniels who are scheduled to give evidence during the 14-week case.
Davies told Mr Justice Norris that Daniels owned 300,000 shares in Lloyds and that the decision to proceed with the HBOS takeover, which was announced days after Lehman Brothers collapsed in September 2008, was a collective board decision.
Davies said that the compensation case was “fundamentally flawed” and “legally unprecedented”.
The deal represented a “unique opportunity” because before September 2008 it would have run into problems with the competition authorities, said Davies. The court has previously heard that Blank met the then-prime minister, Gordon Brown, days before the deal was announced to be reassured that competition concerns could be overcome if the deal was done.
Davies said that over the weekend of 12 October 2008 – when the government was working on a bailout of the entire UK banking system – the board had to make an “urgent decision” about whether to proceed with the deal. The offer price was reduced, while the original offer of £12.2bn had a “significant buffer” built in given that the “book value” of HBOS was £25bn at the time.
As well as Blank and Daniels, the former finance director Tim Tookey, former head of retail Helen Weir and former head of wholesale banking Truett Tate are named in the case and are scheduled to give evidence.
Before Davies began, Richard Hill QC, for the shareholders, had said that Merrill Lynch, advisers to Lloyds during the deal, garnered fees of £11m for working on the takeover deal.
Hill said that in December 2008 – after HBOS issued a profits warning to the City – the Lloyds board had taken advice about pulling out.
The case continues.