Lloyds Banking Group has rejected a last-ditch bid to settle a legal claim over the disastrous merger that created Britain’s biggest high street lender, days before a trial featuring some of the country’s most prominent financiers is due to begin.
Sky News has learnt that the Lloyds Shareholder Action Group (LSAG) last week told the bank that it would abandon its claim in exchange for a payment of roughly £500m, according to insiders.
Sources close to Lloyds said on Monday that the offer from Harcus Sinclair, the law firm acting for the claimant group of 6,000 former Lloyds TSB investors, was immediately rejected by the bank.
The prospects of a further settlement proposal being tabled before the trial is due to start on Wednesday are “slim”, said a person close to the situation.
The action group is reported to be seeking damages of about £600m.
The absence of a pre-trial deal would mean that former Lloyds executives including Eric Daniels, the chief executive who steered Lloyds TSB through the merger, and Sir Victor Blank, the then chairman, will be among those cross-examined as defendants.
Sir Hector Sants, the former chief executive of the Financial Services Authority, is understood to have agreed to give evidence in private.
In a statement issued to Sky News, Paul Sanders, chairman of the committee of LSAG, declined to comment on the settlement proposal, but added: “These are more dirty tricks.
“Lloyds’ top brass had hoped that we would go away and that we wouldn’t have the means to bring this David and Goliath case to trial.
“Well here we are and at long last, and the directors and the bank itself, which is continuing to defend their ex-directors and footing their huge legal bills, will be forced to account for their failures towards their own shareholders.”
The trial, which will see the action group argue that Lloyds TSB shareholders were “duped” into buying HBOS, will be one of the most significant pieces of litigation to emerge from the British banking crisis.
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.
In the Lloyds case, roughly 300 of the claimant group are institutional investors such as pension funds.
Their lawsuit argues that the directors of Lloyds TSB breached their duties to shareholders by recommending the takeover of HBOS without disclosing either a £10bn loan facility from the acquiring bank to its merger partner or “covert funding” from the UK and US central banks.
“In particular, the claim asserts that the acquisition of HBOS was a very bad deal for the shareholders of Lloyds because exchanging 0.605 Lloyds shares for each HBOS share constituted a gross over-valuation of HBOS’s share capital and resulted in the share capital of the Lloyds shareholders being excessively diluted,” an LSAG statement issued on Monday said.
“Furthermore, it was a breach of the directors’ duties to the Lloyds shareholders for the directors of Lloyds to recommend the acquisition at the EGM on what they knew to be incomplete and misleading information, statements and advice.”
The trial could shed fresh light on the extent to which Labour government ministers and regulators were involved in orchestrating the deal, following a now-infamous encounter between Sir Victor and Gordon Brown shortly before the merger was announced.
As the scale of HBOS’ loan losses emerged in the wake of the merger, British taxpayers were forced to pump in more than £20bn to keep the combined entity afloat.
Sir Victor stepped down within months of the deal, and the Government was left holding at least part of its 43% stake until as recently as this year.
A spokeswoman for Lloyds said the action group’s claim had “no merit” and “would be defended vigorously”.