Lloyds group can’t shake troubled past in suit over HBOS takeover

Bloomberg

Lloyds Banking Group Plc will be forced to relive a turbulent period in its 252-year history as former executives line up to testify at a London investor trial over its decision to take over the ailing HBOS Plc in 2009 at the height of the global financial crisis.
Around 6,000 retail and institutional investors sued the bank for $800 million claiming the bank and its executives deliberately misled them to win approval for the deal by not revealing the bank’s true financial position. Ex-CEO Eric Daniels and former chairman Victor Blank are among senior bankers who will testify at the trial.
The case is the second shareholder lawsuit relating to the financial crisis, which forced the UK government to pledge 1.2 trillion pounds to support banks, in London courts this year. In June, Royal Bank of Scotland Group Plc reached a last-minute deal with investors just as the trial was due to start.
“It is critical that the public sees bankers finally owning up to decisions in relation to the melt-down of the financial crisis,” said Thorsten Beck, a professor of banking and finance at the Cass Business School in London. “Part of the populist wave has been the feeling that bankers got away with it.”
HBOS failed in 2008 and was sold to Lloyds, which then required about 20.5 billion pounds of UK 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 that the bank received billions in ‘covert’ financial support from the Bank of England and the US Federal Reserve.

The HBOS acquisition was achieved by “means of misrepresentations, omissions, concealment of material information,” and negligent advice, the claimants’ lawyers said in documents prepared ahead of what’s scheduled to be a four-month trial.
Lloyds denies all the allegations and said all the claims are “vague” and “not coherently structured.” The bank provided sufficient information to make an informed decision at the 2008 Extraordinary General Meeting “and that information was not false or misleading,” Lloyds’ lawyers said in court documents.
Settlement Bid
Ahead of the trial, Lloyds rejected a proposed settlement that would have seen the Lloyds Shareholder Action Group abandon its claim in exchange for a payment of roughly 500 million pounds, Sky News reported on Oct. 16, citing unidentified sources.
The shareholder group didn’t immediately respond to an email request for comment on the report. The bank didn’t comment on the settlement offer.
The furor around HBOS has rumbled on elsewhere as other regulators have tried to grapple with the issue. Last month, the U.K. accounting regulator closed its investigation into the conduct of KPMG’s audit of HBOS, saying there’s no “realistic prospect” of finding wrongdoing by the auditor.
Lloyds Chief Executive Officer Antonio Horta-Osorio has strengthened the bank since the financial crisis, restoring the lender’s profitability and financial strength. The CEO has cut thousands of jobs and sold assets, helping him to return the bank to profitability and restore dividend payments in 2015 for the first time since its bailout.
The bank said in a statement that the claims in the lawsuit don’t have any merit. The U.K. government sold its last remaining shares in Lloyds in May, bringing Britain’s biggest mortgage lender back into full private ownership.
Senior Bosses
It has become a rarity for senior bankers to be held publicly accountable in a court room for critical strategic decisions they made as global markets roiled. Many have tried but ultimately failed to have the executives face the opprobrium they feel they deserve.
“It is really important to victims and the public that well-founded allegations are put to the people responsible and their responses are heard,” said Richard Moorhead, a professor of law and professional ethics at University College London.
Investors got tantalizingly close earlier this year as RBS geared up for a trial over its 2008 emergency rights offering with ex-CEO Fred Goodwin lined up as the star witness. However, a settlement was reached as the trial was due to begin.
Daniels, who left the bank in 2011, came under fire from lawmakers during his tenure at Lloyds for his handling of the lender’s mis-selling of insurance products, was at the helm for the takeover and a government bailout which left the bank 43 percent owned by the British taxpayer.
Daniels and Truett Tate, the former head of wholesale banking, find themselves in the curious position of having to defend the bank in this suit and then attacking it in another. The men have both sued Lloyds over unpaid bonuses linked to the successful integration of HBOS.
Hector Sants, the former head of the then U.K. regulator Financial Services Authority may also testify, according to court documents.