The government did not force Lloyds TSB to buy HBOS at the height of the financial crisis, the High Court heard today, as the first former Lloyds executive gave evidence in a £550m legal case brought by shareholders.
Tim Tookey, who served as group finance director of the bank, told the court: “We were not compelled to do the deal; we wished to do the deal.”
Lloyds took over HBOS, the bank created after the merger of Halifax and Bank of Scotland in 2001, when it faced collapse as wholesale funding markets dried up in the wake of the Lehman Brothers bankruptcy on 15 September 2008.
Shareholders in the £550m action allege the bank’s former leadership, five of whom are named as defendants alongside the bank, did not disclose relevant information including support from the Bank of England before recommending investors approve of the deal.
Richard Hill QC, the barrister representing the claimants, asked Tookey if the premium paid by Lloyds for HBOS represented a deal of “colossal overvalue”. The claimants allege Lloyds overpaid because HBOS was not viable as a going concern without financial support from Lloyds and the Bank of England.
Tookey, who now serves as finance director at Old Mutual Wealth, described the process of finding the right price as “very difficult”, saying: “We felt that was an appropriate price to pay.”
He said: “We did the deal because we believed it was in the best interests of shareholders.”
Tookey said there was “market pressure” on Lloyds to make a move for HBOS quickly, as the share price collapsed.
“Part of the time pressure was in an attempt to alleviate the market pressures,” Tookey told the court.
He added he did not hear reference to “nationalisation” at the time the deal was being discussed. He said: “I didn't hear that word at the time.”
Hill referred today to written evidence given by former Lloyds chief executive Eric Daniels, in which he described the situation as “urgent”. Daniels is due to face questioning within the coming fortnight.
In the written evidence, Daniels said: “...the situation was urgent, and that it was now or never to do the deal. The Tripartite Authorities [the Financial Services Authority, the Treasury and the Bank of England] were concerned that if HBOS collapsed, it could lead to a wider systemic collapse. In the circumstances, Mr King told us that an announcement of the transaction had to be made the next day or the Government would move to nationalise HBOS.”
The case, which is currently set to run until March, continues.