CASES
Lloyds Banking Group, PLC
Class Period: Oct 1, 2008 to Feb 27, 2009
Lead Plaintiff Deadline: Jan 22, 2012 + Deadline passed
Summary of Case:
A securities class action has been filed against Lloyds Banking Group, PLC ("Lloyds"), on behalf of purchasers of Lloyds ADRs during the period October 1, 2008 through February 27, 2009 ("the Class Period"). This case has been filed in the USDC - New York (Southern).
The complaint Alleges that on September 18, 2008, Lloyds announced that it had reached an agreement to acquire the Halifax Bank of Scotland (HBoS). Under the agreement, HBoS shareholders would receive .83 shares of Lloyds for every share they owned in HBoS. The transaction was reported to the SEC in a 6-K.
The merger was described by Defendant Daniels as "a fantastic deal." Daniels further stated that the merged entity would have "a robust capital position" and "very strong liquidity." Unbeknownst to the public, however, beginning on October 1, 2008, HBoS was insolvent, and had received Emergency Liquidity Assistance (ELA) from the Bank of England. The amount of ELA provided to HBoS varied from day-to-day, but it peaked on November 13, 2008 at £25.4 billion.
HBoS further received assistance from the United States Federal Reserve Bank (US Fed Assistance) beginning on September 16, 2008. On information and belief, this funding amounted to not less than $11.5 billion. Neither the ELA nor the US Fed Assistance was publicly disclosed.
In a report published by the Bank of England in 2010, the Governor of the Bank of England stated "Without that assistance, [HBoS] would not have survived." As a result, no investors, properly advised, would have bought Lloyds ADRs after October 1, 2008; or alternatively, would not have bought Lloyds ADRs at the prevailing marketprice because the true value was significantly less than the prevailing price.
On October 13, 2008, Lloyds and HBOS announced revised terms to the acquisition. This was reported in a 6-K filed with the SEC. The 6-K fails to disclose that the ELA and the US Fed Assistance had been extended to HBoS. Moreover, in an analyst call on October 13, 2008, Defendant Daniels stated:"We're feeling very good about the [HBoS] purchase," and "We feel very good about the deal." Daniels further stated: "We are very careful in our funding and that's one of the reasons why Lloyds TSB is in such great shape today. As you know, at the short end, we fund about 10 basis points below LIBOR. Our CDS spread is among the lowest in the industry in looking at longerterm money. Very clearly, Lloyds TSB runs a very prudent funding book. We would expect to
have that same kind of prudent risk stance in the combined entity. So you should rest assured about that." Finally, Daniels said: "we think that this is a very good deal for our shareholders." At the time of the October 13, 2008 6-K and analyst call, the ELA from the Bank of England to HBOS stood at approximately £25 billion. This liability rendered the shareholders' equity, stated on 18 September to be roughly negative £20 billion. At that point, HBOS was not only insolvent on a cash flow basis, but on the basis that its assets were substantially exceeded by its liabilities.
On November 3, 2008, Lloyds filed with the SEC its shareholder circular recommending the acquisition ofHBoS (the Circular). The Circular provided that: The Lloyds TSB Directors, whose names appear in paragraph 4 of this Part XII, accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Lloyds TSB Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.
HBoS's financial condition had therefore significantly changed by October 13, 2008, when the revised terms of the merger were announced, and by November 3, 2008 when the Circular was published. In particular: (1) It had lost such a large amount of wholesale funding (i.e. loans from the inter-bank market) that it was at risk of being unable to maintain a positive cash reserve at the Bank of England; (2) No other commercial bank would lend HBOS any money; (3) Without the granting of ELA, HBOS was unable to continue as a going concern; and (4) It could meet its obligations only by borrowing from the Bank of England and the U.S. Federal Reserve.
Meanwhile, the Directors of Lloyds, and in particular Sir. Blank and Mr. Daniels knew the full extent of the ELA and the US Fed Assistance and the material deterioration of HBoS's financial condition. On November 19, 2008, the acquisition was approvedby the Lloyds shareholders. A similar vote of HBOS shareholders on December 12, 2008 resulted in approval of the takeover.
On or about November 24, 2009, the Bank of England revealed the ELA that had been extended to HBOS. It also reported on the ELA in its May 2010 Annual Report. It was only at this point (and in the following weeks), that the market learned that during the Class Period, HBoS was effectively insolvent and had received the ELA to prevent its collapse, and that these facts had been knowingly concealed by the Defendants during the Class Period. Although the existence of the ELA and the state of Lloyds knowledge of it, was not disclosed until November 24, 2009, the market did begin to understand the true nature of HBoS's finances shortly after the merger was consummated.
On February 13, 2009, Lloyds reported that the newly acquired HBOS had suffered a worse-than-expected £10 billion loss in 2008, causing the price of Lloyds ADRs to plummet from a closing price of $5.33 on 2/12/09 to $2.99 on 2/17/09, a total decline of 44 percent. Then, on February 27, 2009, Lloyds confirmedthat HBOS made a pre-tax loss of £10.8 billion in 2008, and that it had been plagued by £9.9 billion of bad loans.
This announcement causedthe price of Lloyds ADRs to decline 44 percent in the following trading days. In total, the news released from February 13 to February 27 resulted in a decline in the price of Lloyd's ADR's from $5.33 to $2.22, a decline of 58 percent.
If you purchased this company's shares during the Class Period and suffered a loss or for further information about the case, please review the links below.