LLOYDS shareholders were “mugged” when the bank recommended buying HBOS without disclosing its true financial state, the High Court has heard.
“They should never have been kept in the dark and the responsibility for that lies fairly and squarely with the defendants”, Richard Hill QC told Mr Justice Norris in London at the start of a 14-week trial aimed at recovering more than £550m.
A group of 5,803 former Lloyds TSB shareholders are suing Lloyds Banking Group, former chairman Sir Victor Blank, ex-chief executive Eric Daniels, former chief financial officer Tim Tookey, one-time director of retail banking Helen Weir, and ex-director of wholesale banking George Truett Tate.
Mr Hill said that the directors recommended the “disastrous” January 2009 acquisition to shareholders when, based on information they had, no reasonable director would have done so.
They knew that HBOS had suffered a funding failure, could not meet its obligations and was on “emergency life support” from the Bank of England and Lloyds.
The directors “rushed” into agreeing the deal without any proper analysis and the bailout was kept secret both from the market and the shareholders.
The circular sent to shareholders deciding how to vote on the acquisition was a “highly misleading” document which misrepresented the key information they needed to assess the deal.
“The information that would have disclosed it was a bust failed bank was omitted deliberately.
“The opposite impression was given.
“So, although it had reached the same situation as Northern Rock, shareholders were not told that.”
Mr Hill said: “My clients have suffered catastrophic losses from the acquisition, for which we hold the defendants responsible.”
The shareholders, some of whom saw the value of their investments collapse and their life savings “ruined”, were “mugged”, he added.
The acquisition left Lloyds saddled with toxic assets and it was later forced to take a Government bailout worth £20.3bn, which has been blamed in part on the takeover.
A spokesman for Lloyds, which is due to open its case today, has said: “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.’’
The long-awaited civil action brought by the Lloyds/HBOS Shareholder Action Group, which represents about 6,000 former Lloyds TSB shareholders, is expected to last for 14 weeks.
The claimants are comprised of around 300 institutional shareholders – which includes pension funds and investment funds from the UK, Europe, Asia, Canada and the US – and around 5,700 retail investors who argue that Lloyds TSB failed to disclose the true financial state of HBOS when it launched the acquisition.
HBOS - formed through a merge of the Halifax and the Bank of Scotland - had major corporate centres in Calderdale at Trinity Road, Halifax, and Copley. Around 6,000 staff are employed in the district by Lloyds Banking Group.
The hearing continues.