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Legal Action on Lloyds-TSB and HBOS merger

Attention all former Lloyds-TSB shareholders.

As former Lloyds-TSB shareholders are no doubt well aware, the merger of Lloyds-TSB with HBOS in January 2009 to form the Lloyds Banking Group was a disaster for shareholders in Lloyds-TSB. Lloyds-TSB was a financially strong bank who historically had paid a high dividend. HBOS was obviously in financial difficulties at the time and needed bailing out. Indeed information that subsequently became public suggest it was in reality about to go bust because of its large exposure to dubious property loans and reliance on money market funding. The deal and subsequent refinancing of the bank by the Government meant massive dilution of the Lloyds-TSB shares, the cessation of dividends which have still not been resumed and a collapse in the share price from which it has only partly recovered.

There were a lot of questions raised at the time about the wisdom of the directors of Lloyds-TSB in pursuing this merger and whether they were acting in the interests of their own shareholders or at the prompting of the Government. The latter were assumed to be keen to save HBOS to avoid further runs on banks and to stabilise the banking sector.

Shareholders did support the merger – at least most institutions did which is why the vote of shareholders was won. It has been suggested that this was because many institutions held both Lloyds-TSB and HBOS shares and they were keen to protect their interest in the latter. Also the directors recommended the acquisition on the basis that it would enable the bank to grow when they had few other opportunities . However private shareholders, or others who only held Lloyds-TSB, were often opposed to the merger.

A legal case is now being pursued on behalf of investors in Lloyds-TSB by law firm Harcus Sinclair Ltd. They are encouraging all investors who held shares in Lloyds-TSB between September 2008 and January 2009 to register their interest on this web site: . There is no cost to do so as third party litigation funding has apparently been obtained (from Therium) and adverse costs insurance has also been obtained. Investors need to register their interest before the 10th November 2014 so please do so immediately if you wish to support this legal action.

The basis of the claim is an allegation that the defendants (who comprise Lloyds Banking Group and certain former directors of Lloyd-TSB including Chairman Sir Victor Blank) encouraged Lloyds shareholders to vote in favour of Lloyds’ acquisition of HBOS in January 2009, without providing them with the information they needed to properly consider the proposal. They say that the defendants concealed the fact that HBOS was reliant on Emergency Liquidity Assistance from the Bank of England of up to £25.4 billion, financial support from the Federal Reserve of up to US$18 billion, and a possible loan from Lloyds in the order of £10 billion. A further allegation is that the named directors of Lloyds breached fiduciary and other duties owed directly to shareholders when advising them that the acquisition of HBoS and the connected Government recapitalisation of Lloyds were in their best interests.

A Group Litigation Order has already been obtained from the High Court in respect of this case, and a statement of claim submitted. It has the backing of a number of institutional investors. Note that we understand that the former Lloyds Action Now group who were active in trying to develop a similar legal claim some time ago have no active role in the prosecution of the current case, but several members of that group have now joined this action.

Comment and Recommendation

ShareSoc recommends that our members who were holders of Lloyds-TSB shares at the relevant time consider joining this legal action and should go to the aforementioned web site and view what is said there and register if they consider it appropriate to do so. But only Harcus Sinclair can provide further information or advice on this matter.

As someone who was personally involved in the events at the time, and as a former shareholder in Lloyds-TSB, I welcome more examination of the issues. I wrote extensively on the events at the time, attended a meeting with Lloyds investor relations managers before the takeover and was present at a meeting with Sir Victor Blank subsequently. It appeared that Lloyds management were ignoring all representations on the dire quality of the HBOS property portfolio from those knowledgeable in that sector, and seemed to have a very optimistic view of the likely outcome of the merger in comparison with mine. This legal action appears to be well founded in law and is professionally organised, although there is always uncertainty about the success of any legal action of this nature, especially when the case is as complex as this one is likely to be. Lloyds have already said they will defend the claim.

Roger Lawson

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