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Pension funds initiate £300m class action claim over Lloyds HBOS takeover

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European pension funds have held initial talks on their class action lawsuit against the Lloyds Banking Group over the botched takeover of Halifax Bank of Scotland (HBOS) in 2008.

Law firm Harcus Sinclair has amassed 6,000 claimants against the UK banking firm, including 300 pension funds and institutional investors from Canada, Europe, the UK and the US.

The potentially £300m (€424m) class action suit is in reference to Lloyds TSB bank’s directors allegedly misleading shareholders into approving a takeover of HBOS despite the latter’s finances not being in order.

Shareholders approved a takeover of HBOS in November 2008.

However, the group now claims Lloyds TSB directors breached their legal duty in recommending the takeover, and in the information provided.

Harcus Sinclair said the bank’s directors failed to disclose to Lloyds TSB shareholders that it made a secret £10bn loan facility to HBOS, or that HBOS received £25.7bn from the Bank of England and $18bn (€12.5bn) from the US Federal Reserve.

The merged firm – renamed Lloyds Banking Group – then received significant bailouts from the UK government, which still retains a 21.8% stake.

Claimants – which include the Royal Borough of Kensington and Chelsea Pension Fund, among other local government schemes – said the takeover was not in their best interest.

They said it diluted holdings in combined banking group and included a “gross over-valuation” of HBOS.

“It was a breach of the directors’ duties to the Lloyds TSB shareholders to permit the extraordinary general meeting to take place, on the basis of what they knew to be incomplete and misleading information, statements and advice,” Harcus Sinclair said.

In a case management conference held yesterday, the claimants – whose lawsuit is being funded by Therium Capital Management – demanded that defendant Lloyds Banking Group reveal all legal advice provided to directors on the takeover.

Claimants – which owned around 300m shares in Lloyds TSB at the time, estimated to be around 5% of market value – believe the bank’s legal advice would have included informing shareholders of the private loan facility and HBOS’s other financial assistance.

Mr Justice Nugee, the presiding judge, ruled in favour of the claimants and said both parties must provide budgets to mitigate excessive costs in the case.

The case is expected to continue, with pre-trial hearings this year, before beginning towards the end of 2016.

The suit is among many class action cases launched against UK banks in the aftermath of the 2008 financial crisis.

Five UK institutional investors, including the Universities Superannuation Scheme, are challenging the Royal Bank of Scotland over a £12bn share issue in 2008 used to fund the controversial takeover of Dutch bank ABN AMRO.

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