Thursday 26 April 2018

Bank shareholders 'mugged' during crisis, court told

Lloyds Banking Group
Lloyds Banking Group "mugged" shareholders when it got them to agree to the "catastrophic" HBOS deal at the height of the global financial crisis, a lawyer representing thousands of investors suing the bank said on the first day of a London trial.

Jeremy Hodges

Lloyds Banking Group "mugged" shareholders when it got them to agree to the "catastrophic" HBOS deal at the height of the global financial crisis, a lawyer representing thousands of investors suing the bank said on the first day of a London trial.

Senior executives "pursued a dangerous and value-destroying strategy" to push the deal through, Richard Hill, the claimants' lawyer, said yesterday in court. They "withheld or misrepresented" vital information that shareholders never would've approved had they known the full extent of the risk.

The case is the second shareholder lawsuit in London courts this year relating to the financial crisis, which forced the UK government to pledge £1.2 trillion to support banks. In June, Ulster Bank owner Royal Bank of Scotland Group reached a last-minute deal with investors as the trial was due to start.

Lloyds has consistently stated that the allegations are without any foundation.

HBOS - which included the former Bank of Scotland Ireland - failed in 2008 and was sold to Lloyds, which then required about £20.5bn of UK taxpayers' money to prevent its collapse. The claimants, which include about 300 pension and investment funds, accuse Lloyds of "secretly" making a £10bn loan facility available to HBOS and that the bank received billions in "covert" financial support from the Bank of England to keep the bank from collapsing while the deal was being negotiated.

The Bank of England declined to comment on the claimants' allegations.

The warning signs were clear had the executives done a proper analysis of the risks and impairment rates faced by HBOS, which at the height of the financial crisis was one the UK's worst-performing lenders, Mr Hill said.

"HBOS was facing catastrophic impairment," he said.

"Extraordinarily, the bank's board didn't put the risks through any analysis and in pressing the deal forward mugged shareholders into accepting. The information that would have disclosed that HBOS was a bust bank was deliberately withheld."

The trial, set to run until the beginning of March, will feature ex-CEO Eric Daniels and former chairman Victor Blank as key defence witnesses.

Bloomberg

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