Former Lloyds bosses and the former top City regulator face days of questioning in court next month as a much-anticipated High Court case on the bank’s purchase of HBOS during the financial crisis gets underway.
The £600m claim by the Lloyds/HBOS Shareholder Action group, one of the largest so far to do with the financial crisis, has been brought by around 5,700 private shareholders and another 300 corporate entities, including institutional investors.
Ex-chief executive Eric Daniels is one of multiple former board members and executives at the UK’s third-biggest bank who will take the stand at the hearing, due to start by mid-October, while the former head of the now defunct Financial Services Authority, Hector Sants, is also expected to be called for testimony.
Daniels will be questioned for as long as four days, according to a preliminary timetable of the hearing, while former chairman Sir Victor Blank will be questioned for as long as two days.
Meanwhile, former finance chief Timothy Tookey is set for the longest time on the stand, with as many as six days of questions scheduled. He will be joined by ex-Lloyds board member Archie Kane, who described HBOS as having “no value left” in the weeks before the purchase in a note jotted at a meeting of the executive committee of Lloyds, along with other former executives at the bank.
The group litigation order is being run by law firm Harcus Sinclair, with funding for the action by Therium Capital Management, a specialist litigation funder. Therium will take a third of any award.
The case, to be heard by Justice Norris after Justice Nugee broke his leg, centres on alleged breaches of duty by Lloyds executives in their purchase of HBOS at the end of 2008, at the height of market turmoil during the financial crisis.
Lloyds believes two similar cases have already been thrown out in the US. Its defence will hinge on the argument that disclosures to shareholders at the time were adequate, while the majority of shareholders have not joined the legal action.
A spokesperson for the bank said: “The Group’s position remains that we do not believe there to be any merit to these claims and we will robustly contest this legal action”.
The court will also hear weeks of expert testimony as both sides try to bolster their case.
The complainants say directors did not disclose to the Lloyds TSB shareholders that Lloyds had secretly made a £10bn loan facility available to HBOS and that HBOS had been receiving covert funding from central banks.
HBOS later collapsed in 2008 when wholesale funding markets froze, leaving it unable to continue functioning. It was rescued by Lloyds with the backing of the government
City watchdogs at the Financial Conduct Authority are investigating several senior managers from HBOS in a separate probe to determine if misconduct contributed towards the bank’s collapse.