October 23, 2015 / 2:29 PM / 4 years ago

Lloyds fails to remove key allegation in HBOS pre-trial hearing

* Judge allows key allegation to feature in trial

* Shareholder group says it was misled over HBOS purchase

* Claims Lloyds didn’t need extra capital without HBOS

* Lloyds says no legal basis to claims

By Matt Scuffham

LONDON, Oct 23 (Reuters) - Britain’s Lloyds Banking Group has failed in an attempt to strike out a key allegation by a group of investors, suing it for allegedly misleading them in the run-up to its acquisition of Halifax Bank of Scotland (HBOS) in January 2009.

The Lloyds Shareholder Action Group, including 5,700 private investors and 300 financial institutions such as pension funds and insurers, is seeking damages of 350 million pounds ($546 million), according to legal sources.

At a pre-trial hearing on Friday, Judge Christopher Nugee rejected Lloyds’ assertion that a shareholders’ allegation was “fanciful”, and should not feature in the trial, that it would not have needed to raise extra capital had it not acquired HBOS.

The claimants, represented by law firm Harcus Sinclair, say the allegation is supported by a comment made by former Lloyds Chief Executive Eric Daniels to a committee of legislators in February 2009.

Daniels told parliament’s Treasury Select Committee Lloyds would not have needed to take government money if it had not acquired HBOS during the 2007-09 financial crisis.

Nugee said it would be “impossible” to strike out the allegation and said former directors of Lloyds should seek to persuade the court, when the case comes to trial, that the acquisition was in the best interest of shareholders.

However, he did strike out other claims by the investor group, based on statements made in a prospectus issued by Lloyds in November 2008, prior to the acquisition.

The ruling will be welcomed by investors who have joined forces to sue Britain’s biggest retail bank and five of its former executives, alleging the true financial position of HBOS was kept from them at the time of the deal.

Lloyds was ultimately bailed out at a cost of 20 billion pounds ($31 billion) to taxpayers, a scenario the shareholders say would have been avoided were it not for the HBOS deal.

The investors say they were not told HBOS was receiving emergency support from the Bank of England and U.S. Federal Reserve and were unaware of a 10 billion pound loan made by Lloyds to HBOS to prevent it from collapsing.

A Lloyds spokesman said: “The group’s position remains that we do not consider there to be any legal basis to these claims and we will robustly contest this legal action.”

The case is expected to be heard next year. ($1 = 0.6487 pounds) (Editing by David Holmes)

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