LONDON Thousands of investors have launched a group legal action against Lloyds Banking Group (LLOY.L), seeking compensation for losses arising from the bank's takeover of HBOS during the 2008 financial crisis.
Lloyds paid a heavy price for the government-engineered takeover of HBOS, requiring a 20 billion pound ($33.7 billion)bailout after HBOS was caught out by a near-shutdown of the wholesale funding markets that it relied on more than rivals.
The Lloyds Action Now group, which comprises 7,500 investors, estimates shareholders lost a total of 12 billion pounds as a result of the takeover making the claim potentially one of the biggest ever before the British courts.
State-backed rival Royal Bank of Scotland (RBS.L) is facing a similar action from investors who say they were misled during an emergency cash call in 2008 and are claiming damages of around 4 billion pounds.
In a statement on Wednesday, the Lloyds shareholder group said it had launched proceedings in the UK High Court against the bank and former directors including ex-chairman Victor Blank and ex-chief executive Eric Daniels.
Lloyds said it would defend itself against the action.
"The group's position remains that we do not consider there to be any legal basis to the claims made by Lloyds Action Now," a bank spokesman said.
The claim alleges vital information about the parlous state of HBOS was deliberately withheld from shareholders when they were asked to approve Lloyds' takeover of Britain's biggest mortgage lender.
It states that details of 25 billion pounds of emergency funding provided to the bank by the Bank of England had been kept secret so HBOS could be kept afloat while the takeover by Lloyds was mounted.
The group has also applied for a group litigation order so that 800,000 private retail investors in the bank can have their case heard in the same hearing as institutional investors.
($1 = 0.5941 British Pounds)
(Reporting by Matt Scuffham; Editing by Erica Billingham)