In January 2009, after several weeks of negotiations, Lloyds finally merged with HBOS to create an all-new super-bank. The takeover saw Lloyds in the role of white knight, rescuing the ailing (but not toe up) HBOS to create ‘the UK's leading financial services group’ and ‘create great value for both sets of shareholders’ according to then CEO Eric Daniels. But what he and Sir Victor failed to mention – or perhaps notice - were how deep the cracks in HBOS’ business model truly were, cracks that were to result in a £10bn loss at the end of its financial year.
Just weeks after the ink had dried on the deal, the Bank of England was forced to bail out Lloyds, at a cost of £25bn to the taxpayer. Unsurprisingly, the shareholders that had expected bumper dividends and a new dawn of profitability were unhappy. Now, three years on, a consortium of US shareholders have banded together to sue Daniels and Sir Victor for the part they played in the deal.
The class action, brought against the former Lloyds bosses, was lodged from the Southern District of New York earlier this week, accusing them and the bank of making misleading statements about the deal, and covering up HBOS’ losses – the bank was technically insolvent at the time of purchase. Sir Victor and Mr Daniels violated parts of the US Exchange Act, the action alleges, and are guilty of ‘wrongful conduct’ and making ‘false and/or misleading statements’.
But what can the plaintiffs get out of this action? Compensation? Surely not from the accused men. Sir Victor Blank left Lloyds shortly after the furore in 2009. Daniels stepped down as CEO in 2011. They cannot be retrospectively fired, and there is no precedent for slashing pensions or remunerations that were agreed years before a case is filed. The deal was also sanctioned by then Prime Minister Gordon Brown. Will he be held accountable too?
It will also be interesting to see whether this case gives rise to other cases - more vigilante-style hits on the banks from angry shareholders suspecting wrongdoing.
In the meanwhile, this action will force the FSA to dig its scalpel into the corpus of data at Lloyds. But what happened to RBS, the bank that was also bailed out in 2008 and probed by the FSA only last month? The FSA inquiry – or vivisection - made the staggering pronouncement that the bank’s failure came about due to ‘bad management’ (hardly a stab in the dark, that). Yet no further action has been taken.
How ironic that, only last week, Sir Victor Blank appeared as a guest editor on the Today programme talking about leadership and conflict resolution. Let's see how he manages this latest test. Expect much more mud-slinging before the case is resolved.