Lloyds shareholders begin legal action

The government still owns a large share of Lloyds

Shareholders in Lloyds Banking Group have launched legal action to recover up to £14bn they claim to have lost as a result of Lloyds' takeover of HBOS.

The shareholders allege that former Chancellor Alistair Darling and Lloyds directors withheld vital information in the run-up to the takeover in 2008.

Over the weekend, they sent the Treasury and two directors demands for compensation.

Lloyds said it had given shareholders "thorough and appropriate" information.

Shareholders will start a campaign on Wednesday to raise awareness of their claims.

The Treasury, former chairman Sir Victor Blank and chief executive Eric Daniels now have 90 days to respond.

Compensation demands

Lawyers for the investors argue a £25.4bn Bank of England loan to HBOS should have been made public.

"There can be no doubt that the fact of the £25.4bn loan was not only being kept secret for the possible advantage of the UK banking system, but was deliberately kept secret so that Lloyds TSB shareholders were not put off the proposed acquisition of HBOS," said Jim Rai, head of litigation at Winckworth Sherwood, acting for the Lloyds Action Now shareholder group.

Responding to the claims, Lloyds said it had "provided thorough and appropriate information to shareholders about our liquidity position and that of HBOS, including the general use of government backed liquidity schemes".

The bank said it had also made clear to shareholders that "if such support was not available, there would be a material impact on the solvency of the business.

"That was, in the view of the board, thorough and appropriate disclosure."

Heavy burden

The £25.4 Bank loan to stop HBOS from going under was made just one month before Lloyds shareholders approved the merger.

The group argues that shareholders were deceived into "shouldering the burden" of saving HBOS, a burden that should have been shared more fairly with the UK taxpayer, it says.

Shareholders claim that, collectively, they have lost £14bn as a result of the government's handling of the Lloyds/HBOS takeover.

The government was forced to bail out Lloyds during the financial crisis, and it still owns 43.5% of the bank.

Analysts say that Lloyds would still have needed government help, regardless of whether or not it took over HBOS.