Lloyds shareholders in court to make HBOS over valuation case

Lloyds Shareholder Action Group, the group of former Lloyds TSB shareholders who claim that HBOS was “grossly over-valued”at the time of its shotgun marriage with Lloyds in 2009, will have their case heard at the Royal Courts of Justice in London today.

At the hearing, which may last for the rest of the week, five former Lloyds directors, including Sir Victor Bank and Eric Daniels, and Lloyds Banking Group will defend a claim for £6 billion of investor losses being brought by the 6,000-strong group, 300 of which are corporate entities including pension funds and other large investment funds in the UK, Europe, North America and Asia.

The action centres around the allegation that at the time of the takeover, directors concealed a £10bn loan facility available to HBOS and covert funding of up to £25.6bn from the Bank of England and $18bn from the Federal Reserve.

It says the merger 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”.

It also claims it was a breach of the directors’ duties to permit the critical extraordinary general meeting to take place.

At the hearing the action group will challenge the value of £11.2bn ascribed to HBOS in the Lloyds accounts and assert that bail-out funding was entirely swallowed up by HBOS losses, not used to recapitalise Lloyds TSB.

It will further ask “whether the director defendants were aware that HBOS was manipulating its Libor (London Interbank Offered Rate) submissions in order to give the impression that it was financially stronger than was actually the case prior to its acquisition by Lloyds”.

At the last hearing in July the claimants were successful in forcing Lloyds to disclose documents relating to the acquisition, including legal advice. “Lloyds asked for permission to appeal this decision and they have subsequently dropped their appeal,” the group said. It is now seeking further disclosures from the bank in relation to Libor and to the preparation of the 2009 accounts.

Lloyds Banking Group said: “We do not consider there to be any legal basis to these claims and we will robustly contest this legal action.”

Unlike the investor lawsuit being brought against RBS, the Lloyds action is being backed by litigation funders who would take 30 per cent of any settlement.