The High Court has heard shareholders in Lloyds were “mugged” when the bank recommended buying Halifax Bank of Scotland (HBOS) at the height of the financial crisis.
The allegation was made by the barrister representing a group of 5,803 former Lloyds TSB shareholders at the start of a trial aimed at recovering more than £550m from the bank.
Richard Hill QC told Mr Justice Norris: “My clients have suffered catastrophic losses from the acquisition, for which we hold the defendants responsible.”
The group, which includes roughly 300 institutional investors such as pension funds, is suing Lloyds Banking Group, former chairman Sir Victor Blank, ex-chief executive Eric Daniels, former chief financial officer Tim Tookey and two other former directors.
Image: Sir Victor Blank (l) and Eric Daniels are pictured at the time of the HBOS deal
The class action suit accuses them of recommending the deal to shareholders when no reasonable director would have done so because they knew HBOS had suffered a funding failure and was on “emergency life support” from the Bank of England and Lloyds itself.
Mr Hill said 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.
He told the court: “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.”
The £12bn acquisition left Lloyds saddled with toxic assets – announcing £11bn of losses from HBOS in February 2009 after its £20.3bn Government bailout.
Lloyds, which returned to private hands earlier this year and rejected a last-minute settlement offer, is due to give its opening statement on Thursday – the second day of the trial that is expected to last 14 weeks.
A spokesman for the bank said of the case: “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.”
A series of claims brought by Royal Bank of Scotland shareholders – which would have seen Fred Goodwin, the bank’s former boss, take the stand – were settled before the case came to trial earlier this year.