• Around 6,000 investors suing over 2008 HBOS acquisition
  • Many allegations made are "fanciful," the banking group says

Lloyds Banking Group Plc asked a London judge to throw out parts of a shareholder dispute over the 2008 acquisition of HBOS that led to a 20.5 billion pound bailout ($31.7 billion), including allegations that some executives knew that the bank manipulated benchmark rates before completing the deal.

Shareholders questioned statements in the takeover prospectus that HBOS had been told by regulators that if a deal wasn’t done, the bank would need to raise an extra 7 billion pounds. Those allegations about the document are "entirely fanciful" and made "without any factual basis," lawyers representing the bank said in filings prepared for a three-day London hearing.

Around 6,000 current and former shareholders are suing Lloyds and five ex-directors, including former chairman Victor Blank, alleging the lender should’ve known the acquisition wasn’t in the best interests of investors. 

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.”

A London judge will have to decide whether to strike out claims made by the investors’ lawyers including whether the directors knew HBOS manipulated Libor submissions to mislead regulators about its financial health and whether they owed a duty to the shareholders to prevent them "suffering loss and damage," lawyers for the bank said.

"We are not dealing with the central issues of the deal, we are dealing with the peripheral issues," Alan Steinfeld, a lawyer for the investors, said trying to persuade the judge not to accept the bank’s application.

Lloyds Chief Executive Officer Antonio Horta-Osorio has cut thousands of jobs and sold assets, helping him to return the bank to profitability and restore dividend payments earlier this year for the first time since its bailout during the banking crisis.

Chancellor George Osborne plans to offer at least 2 billion pounds of shares to individuals to help return the lender to full private ownership next spring. The government has recouped about 15.5 billion pounds to date from selling shares to institutional investors through a trading plan and from two large disposals, cutting the taxpayer’s stake from 43 percent to just under 11 percent.

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