Lloyds tells angry investors: HBOS was a good deal

LLOYDS Banking Group's chairman and chief executive were forced yesterday to mount a robust defence of their controversial takeover of HBOS.

Sir Victor Blank, the outgoing chairman, and Eric Daniels, the chief executive, were repeatedly challenged by shareholders at the group's annual general meeting in Glasgow over the government-sanctioned takeover.

Some 600 shareholders were at the meeting at the SECC and pressed the group's board to explain in more detail how much it had known about the toxic debts on the HBOS balance sheet before it agreed the deal.

They also won an apology from Blank for the decline in the value of their shares and the lack of dividend payments.

Daniels told the audience his team was clear when recommending the HBOS takeover to the board of directors last year that it was a "higher-risk portfolio", but the subsequent economic downturn had been much worse than expected.

He argued that, even with the losses from last year, Lloyds still paid less for HBOS than it was worth.

Blank directly denied repeated accusations that Lloyds was strong-armed into the deal by Prime Minister Gordon Brown.

The chairman, who promised to step down next year after pressure from the government's investment arm, UK Financial Investments (UKFI), insisted it was the bank that initiated the deal.

He said talks between the two banks, had been "off and on for years" and started again in earnest in the summer of 2008.

Blank claimed the "notion was put to the Prime Minister", who referred the deal to the Financial Services Authority, which, in turn, reported back to him.

"The only involvement of the Prime Minister was in relation to one issue, that is the (merger] of two banking institutions in this country which, in historic times, would not have been possible because of competition rules," he said. "We were not asked to do it for Mr Brown, we were not asked to do it for the Treasury or for the nation."

Blank did, however, apologise to investors. He said: "The board and I are sorry about the decline in our share price and the financial difficulties that the temporary suspension of our dividend has caused shareholders."

The chairman faced calls for him to step down immediately. One investor called him "weak, greedy and selfish".

Blank said was not planning to change the arrangement for his departure but made clear he would not be taking any "pay-off" when he left. But he added: "I've asked my colleagues, when the day comes when you, the shareholder, recognise the merits of what's happened, I hope that they will invite me back and buy me a couple of beers."

One institutional investor raised concerns about whether the government would continue to support Lloyds' "oligopolistic" position in the market.

Daniels responded that the government had reviewed the combined bank and agreed "financial stability was far more important than the competitive position". He added: "We believe that would be the stance going forward."

When pressed on the matter, Blank refused to let the chief executive expand further.

Blank won the support of 94 per cent of shareholders for his re-election to the board, with the support of UKFI. Most other directors were re-elected with votes of more than 99 per cent.