Lloyds shareholders lose £385m HBOS High Court case
Lloyds shareholders today lost a £385m High Court case against the bank’s acquisition of HBOS at the height of the financial crisis.
England’s highest court rejected a claim from a group of 5,803 investors that they were “mugged” when the bank recommended the 2009 deal without revealing the state of HBOS’ finances.
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The shareholders had sought to make five Lloyds directors, including then-chairman Sir Victor Blank and former CEO Eric Daniels, personally liable for the damages.
Lloyds’ purchase of HBOS left it with poisonous assets it struggled to shift, before it accepted a £20.3bn government bailout that has been linked to the merger.
But in his ruling today, Judge Alastair Norris said he was not convinced that “failures to provide sufficient information were in fact causative of any loss”.
He ruled that the state of HBOS’ financials should have been shared to ensure shareholders had a “fair, candid and rounded view” of the acquisiton.
But he added: “If the shareholders had been presented with that information they would not have reached a conclusion other than that which they did in fact reach.
“The majority who approved the acquisition did not do so under some misapprehension of the position. They knew the course recommended unanimously by the board. They knew the risks identified by the board. They knew that the board assessed the chance of advantage as outweighing the risk inherent in the transaction.”
The High Court heard that Lloyds directors had failed to reveal that HBOS had received a covert emergency liquidity assistance (ELA) loan from the Bank of England amounting to £25.65bn.
Also, directors were accused of secretly providing HBOS another £10bn after announcing the takeover.
During hearing, Judge Norris observed that former chairman Victor Blank was “a pale shadow of the man who co-authored Weinberg & Blank on Takeovers and Mergers”.
And he found: “In my judgment the existence of the £10bn facility (viewed as a whole) ought to have been disclosed as material which information shareholders could take into account in deciding whether or not to follow the board’s unanimous recommendation.
“I do not say that its should have been disclosed as a “material contract” with all the associated disclosure of terms that is then required. But like ELA, the existence of the arrangement ought to have been disclosed.”
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A Lloyds Banking Group spokeswoman said: “The group welcomes the court’s decision.
“Throughout this process, the group has sought to act in the interests of our shareholders as a whole.”
Damon Parker, founder and partner of law firm Harcus Parker, which represents 300 institutions and almost 6,000 individuals in the case, said: “Our clients are deeply disappointed by today’s judgement.
“They wish to assess their options and will be considering whether to appeal.”
In the course of the hearing the judge heard that Lloyds directors had recommended the “disastrous” acquisition, with the claimants’ law firm Harcus Park arguing that no reasonable director would have done so with the information Lloyds had.
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But Lloyds’ lawyers argued the claimants’ case was “fundamentally flawed at every level”. They also called it “entirely devoid of merit”.