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£600m court case against Lloyds Banking Group begins this week

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The court case brought by a group of former shareholders in Lloyds TSB against Lloyds Banking Group and some its former directors is expected to begin this Wednesday. The value of the claim is for approximately £600m.

The claimants, known as Lloyds/HBOS Shareholder Action argue that some, named directors of Lloyds, among them former chair Sir Victor Blank and former chief executive Eric Daniel, acted in breach of duty when advising them that the acquisition of HBOS in 2009 was in their best interests failing to disclose the financial circumstances of HBOS.

Harcus Sinclair, the law firm leading the prosecution case has previously explained: “The directors did not disclose to the Lloyds TSB shareholders that Lloyds TSB had secretly made a £10 billion loan facility available to HBOS and that HBOS had been receiving covert liquidity support of up to £25.65bn from The Bank of England and US$18bn from the Federal Reserve.

“In particular, the claim asserts that the acquisition of HBOS was a very bad deal for the shareholders of Lloyds TSB because exchanging 0.605 Lloyds TSB shares for each HBOS share constituted a gross over-valuation of HBOS’s share capital and resulted in the share capital of the Lloyds TSB shareholders being disproportionately diluted. Furthermore, it was a breach of the directors’ duties to the Lloyds TSB shareholders for the directors of Lloyds TSB to permit the extraordinary general meeting to take place, on the basis of what they knew to be incomplete and misleading information, statements and advice.”

Lloyds had to be rescued by the taxpayer during the financial crisis, with the Government taking a 43% stake in the enlarged group — which has since been sold off.

The case names Blank, Daniels, the former finance director Tim Tookey, former head of retail Helen Weir and former head of wholesale banking Truett Tate as defendants, as well as the bank itself.

Lloyds, which is also representing its former directors, is contesting the action by the Lloyds/HBOS Shareholder Action group, which represents approximately 6,000 former shareholders in Lloyds TSB, of whom over 5,000 were private investors with a few hundred corporate and institutional shareholders.

The claimants actions are funded by Therium Capital Management, who will take around one third of the award if the claimants are successful.

HBOS Reading fraud

A spokesperson for the Lloyds/HBOS Shareholder Action group said: “The most surprising aspect of the case is that the current chief of Lloyds is standing by the action of his predecessors, especially as he has recently had to deal with the HBOS Reading fraud, which occurred at the time of the financial crisis.”

The HBOS Reading fraud involved corrupt staff at the Reading branch of HBOS who destroyed dozens of small businesses between 2003 and 2007, spending the proceeds on prostitutes and holidays. Ringleaders Lynden Scourfield and consultant David Mills were jailed for 11 and 15 years respectively earlier this year.

It has been argued that after Thames Valley finally began investigating the fraud in 2010, Lloyds was uncooperative. A police commissioner involved in investigating that massive fraud has now claimed in a letter to the Financial Times that top bankers at Lloyds knew about the fraud for a decade but bullied victims to try to silence them.

According to a report in the Daily Mail, Anthony Stansfeld, police and crime commissioner for Thames Valley, attacked Lloyds for its actions and alleged a cover-up. “For ten years, Lloyds knew a massive fraud had taken place within the Reading branch of HBOS,” he wrote in a letter to the Financial Times. “Throughout that period the bank conducted aggressive attacks on the personal guarantees of those defrauded.”

Lloyds Banking Group was contacted for comment but at the time of publication had not replied

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