Lloyds investor lawsuit over HBOS deal 'fundamentally flawed', court hears

Lloyds Banking Group saw a "unique opportunity" in buying struggling rival HBOS during the credit crisis and an investor lawsuit is "fundamentally flawed", a lawyer for the bank told London`s High Court on Thursday.

Helen Davies defended Lloyds` actions during the takeover on the second day of a 14-week London trial in which about 6,000 investors are claiming more than 550 million pounds ($720 million) in damages.

They allege that the bank and five former directors, including ex-CEO Eric Daniels, withheld or concealed crucial information about HBOS`s financial position and breached their duties by recommending the purchase.

Lloyds, Britain`s largest retail bank, and the individual defendants deny any wrongdoing.

In her opening statement, Davies said a "veritable army" of professional advisers worked alongside and helped advise executives on the deal and that the lawsuit was based on hindsight and "a large number of myths or misconceptions".

"The claimants` case is fundamentally flawed at every level ... It is also legally unprecedented," Davies told the court.

In a written filing submitted to the court, Wolfgang Berndt, the former head of Lloyds` remuneration committee who retired in 2010, was quoted as saying at the time that "the proposed acquisition was a once-in-a-lifetime opportunity for Lloyds".

HBOS, formed from the merger in 2001 of former English building society Halifax and the 300-year-old Bank of Scotland, was close to collapse in 2008 after the failure of Lehman Brothers caused money markets to seize up, shutting funding avenues that HBOS needed for its ballooning loan book.

The government-brokered takeover of HBOS valued the bank at around 5.9 billion pounds. But as recession deepened in the wake of the credit crisis, Lloyds itself had to be rescued with a 20.5 billion pound government bailout in 2009.

Richard Hill, a lawyer for the claimants, has argued that executives failed to provide or seek proper financial analysis of the worst-case scenario of the "catastrophic" HBOS purchase, misleading shareholders, Lloyds` board and accountants PwC.

Davies said Lloyds` executives named in the case, who include former chairman Victor Blank, ex-finance director Tim Tookey, Helen Weir, the former head of retail and one-time head of wholesale banking Truett Tate, were highly distinguished and had no motive for acting against shareholders` interests.

She said Lloyds` board unanimously recommended the deal because it presented a rare chance for the bank to acquire HBOS without competition concerns and at a hefty discount to its underlying book value, which she put at 25 billion pounds.

At a London event hosted by Citigroup on September 15, 2008, Blank had received what he interpreted as assurances from former Prime Minister Gordon Brown that competition concerns would be swept aside if the deal could be completed quickly.

The defence also disputed the claimants` argument that Lloyds should have told its shareholders about a 10 billion pound loan it had extended to HBOS, as well as emergency support its rival was receiving from the Bank of England and the U.S. Federal Reserve, which peaked at about 25.6 billion pounds and $18 billion respectively.

Lawyers for Lloyds, which emerged from state ownership in May, argue that the allegations against the bank and its executives are "serious but unfounded", that HBOS`s troubles were well known and that a majority of shareholders would have approved the deal even if there had been additional disclosures.

Two of the banks advising Lloyds on the HBOS purchase, Merrill Lynch and UBS , were each paid around 11 million pounds for their work on the deal, the court heard.

($1 = 0.7602 pounds)

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