Lloyds Sued by 220 Investors Over HBOS Takeover ‘Folly’

Lloyds Banking Group Plc (LLOY) was sued by 220 investors who said they were misled into supporting a 2008 takeover of HBOS Plc that prompted a 20 billion-pound ($34 billion) bailout from the U.K. government.

Britain’s biggest mortgage lender and its executives “knew or ought to have known that the acquisition of HBOS was not a good deal for shareholders of Lloyds and would not be in their best interests,” the investors said in legal documents from the U.K. claim, which was filed in London yesterday.

It’s the second group action brought by shareholders who lost out when the U.K. rescued its lenders during the financial crisis. Royal Bank of Scotland Group Plc is being sued by about 36,000 investors in a 2008 share sale to raise capital before its near collapse.

HBOS ran up bigger loan losses than any other U.K. lender on an aggressive expansion strategy that U.K. lawmakers referred to in a 2013 report as “incompetent and reckless.”

The bank was in 2008 getting financial support from the U.S. Federal Reserve and the Bank of England, and in September of that year it received a “secret loan” from Lloyds of 10 billion pounds, investors said in documents from the lawsuit. Had this been revealed, the “folly” of the takeover would have been exposed and Lloyds would have been forced to pull out.

Lloyds’s “position remains that we do not consider there to be any legal basis to the claims,” the lender said in an e-mailed statement. “We will robustly contest this legal action.”

More Investors

Harcus Sinclair, a law firm acting for the investors yesterday sought a so-called group litigation order, a move which would allow a large number of claimants to be jointly represented at a single trial. While the value of the claim is currently about 2 million pounds, that figure may rise if, like the RBS action, more investors sign up after the filing.

The number of claimants could increase to around 1,000 after the litigation order is made, Oliver Campbell, a lawyer representing the investors said at a hearing yesterday. The order still needs to be ratified by senior judges, according to Matthew Marsh, a London court official.

Campbell said Harcus Sinclair intends to write to large Lloyds investors inviting them to join the litigation.

‘Good Deal’

Victor Blank, then Lloyds chairman, said in an October 2008 conference call with analysts: “We are convinced that this is going to be a very good deal for shareholders,” according to the lawsuit. In reality, “HBOS shares were valueless” and the bank was on the verge of collapse, the investors said.

Lloyds executives at the time of the takeover are also named as defendants in the case, including Blank, former Chief Executive Officer Eric Daniels and ex-finance director Timothy Tookey.

RBS is defending a 4 billion-pound group action from investors who said they weren’t given the full picture in a 2008 rights issue.

Legal problems have hampered the U.K.’s efforts to return Lloyds to fully private ownership. The bank, which is 25 percent owned by the government, has had to set aside more than 10 billion pounds to repay customers sold inappropriate loan insurance.

Documents from the investor lawsuit also included allegations that Lloyds was aware HBOS was manipulating interest-rate benchmarks. Lloyds agreed in July to pay $370 million to settle U.S. and U.K. prosecutions into Libor-rigging.

Lloyds posted a 32 percent gain in underlying pretax profit in the first half as bad loans fell, and said it’s setting aside 1.1 billion pounds for legal redress.

The case is: John Michael Sharp v. Sir Victor Maurice Blank & Ors, High Court of Justice, Chancery Division, HC14C03000

To contact the reporters on this story: Kit Chellel in London at cchellel@bloomberg.net; Jeremy Hodges in London at jhodges17@bloomberg.net

To contact the editors responsible for this story: Peter Chapman at pchapman10@bloomberg.net Simone Meier

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