Daniels is the most senior executive to take to the witness stand, in an ongoing £550m trial which has seen around 6,000 shareholders attempt to sue Lloyds for its disastrous deal with HBOS.
Daniels told a London High Court that, although the then-governor of the Bank of England Mervyn King had told him HBOS would be nationalised if no deal materialised, Lloyds pursued the HBOS merger on the basis that it would be “accretive” for Lloyds shareholders.
“We were not a charitable institution,” said Daniels, while being cross-examined by barrister for the shareholders Richard Hill.
He also denied that the deal for HBOS was a “rescue”, but confirmed that former Lloyds TSB chairman Sir Victor Blank – who is a defendant in the trial alongside Daniels, Lloyds Banking Group and three other senior directors – was told by then-Prime Minister Gordon Brown that the government would “assist” with any competition law issues to help the deal proceed smoothly.
“The government was very concerned about the financial system freezing up,” said Daniels. “It was concerned that if there was any further bad news [such as the failure of HBOS, which was facing funding difficulties] then this would not help.”
When giving evidence last month, Lloyds' former group finance director Tim Tookey – who is also a defendant in the case – denied he had heard any mention of nationalisation. Daniels' cross-examination is due to continue until Thursday.
The HBOS deal
Lloyds agreed its takeover of HBOS in September 2008, as the rival's share price was plummeting due to concerns over its exposure to bad loans.
The deal valued HBOS at £5.9bn – far in excess of the business's market value at the time. As the financial crisis continued to create shockwaves over the next year, Lloyds itself was forced to accept a £20.5bn government bailout.
Angry shareholders are now alleging that Lloyds and the individual defendants, who also include former head of retail banking Helen Weir and ex-wholesale banking head Truett Tate, concealed information about HBOS's financial situation, breached their duties by recommending the deal and failed to disclose that HBOS was receiving a loan from Lloyds and emergency support from the Bank of England.