As HBOS Merger Trial Kicks off, Lloyds Snubs £500m Settlement Bid

A last-ditch effort to resolve a legal claim over the disastrous merger that created the biggest high street lender of Britain has been rejected by Lloyds Banking Group days before a trial that features some of the most prominent financiers of the country is due to commence.

According to insiders, the Lloyds Shareholder Action Group (LSAG) informed the bank last week that it would drop its claim in exchange for a payment of approximately £500m.

On Monday, sources close to Lloyds said that the offer from the law firm that is acting for the claimant group of 6,000 former Lloyds TSB investors, Harcus Sinclair, was rejected by the bank immediately.

A person close to the situation said that the possibility of a further proposal for a settlement being presented before the trial that is set to start on Wednesday are “slim.”

It is reported that the action group is seeking damages of around £600m.

The absence of a pre-trial deal would imply that former Lloyds executives including the chief executive who led Lloyds TSB through the merger, Eric Daniels, and the then chairman, Sir Victor Blank, will be among those thaw will be cross-examined as defendants.

The former Financial Services Authority’s chief executive, Sir Hector Sants, is said to have consented to provide evidence in private.

In a statement that was issued to reporters, the chairman of the committee of LSAG, Paul Sanders, refused to comment regarding the settlement proposal. However, he 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 observe the action group claim that Lloyds TSB shareholders were “duped” into acquiring HBOS, will be one of the most important pieces of litigation to emerge from the British banking crisis.

A set of claims brought by shareholders of the Royal Bank of Scotland – which would have seen the bank’s former boss, Fred Goodwin, take the stand – were resolved before the case came to trial earlier in 2017.

In the Lloyds case, approximately three hundred of the claimant group are institutional investors such as pension funds.

Their lawsuit claims that the directors of Lloyds TSB breached their responsibilities to shareholders by suggesting the takeover of HBOS without revealing either “covert funding” from the central banks of the United Kingdom and the United States or a £10bn loan facility to its merger partner from the acquiring bank.

“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,” said an LSAG statement that was issued on Monday.

“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 cast new light on the degree to which Labour government ministers and regulators were involved in arranging the deal, following a now-infamous encounter between Gordon Brown and Sir Victor shortly before the merger was unveiled.

As the scale of the loan losses of HBO appeared in the wake of the merger, British taxpayers were compelled to pump in more than £20bn to maintain the combined entity afloat.

Within months of the deal, Sir Victor stepped down and the Government was left holding at least a portion of its 43 percent stake until as recently as 2017.

A spokesperson for Lloyds stated that the claim of the action group had “no merit” and “would be defended vigorously.”