Mugged over a £25bn loan: Lloyds shareholders' fury that they were kept in the dark about ailing HBOS



Lloyds shareholders were 'mugged' when the bank decided to buy HBOS without telling them it had been propped up by a secret £25billion lifeline, it was claimed yesterday.



The 800,000 Lloyds shareholders - who needed to approve the deal - were never told about the scale of the support that stricken HBOS had needed from the Bank of England.



Documents sent to shareholders did not make a single reference to the massive handout which was pumped into HBOS, owner of Halifax, last autumn.



Governor of the Bank of England, Mervyn King gives evidence to Commons Treasury Committee this morning where he warned that the economy still faced 'profound challenges'

The takeover deal, which they backed overwhelmingly, has proved disastrous.

Shareholders have seen their investment collapse from a share price of £3.30 last August to as low as 24p in March. Last night, shares were worth 94p.



Yesterday MPs said the revelation meant shareholders in Lloyds - which is now being forced to sell off vast chunks of its business such as the mortgage lender Cheltenham & Gloucester - had been seriously misled.

Labour MP Jim Cousins told the Commons: 'It is plain that the workers and shareholders of Lloyds were mugged.' Tory MP Michael Fallon, a member of the Treasury Select Committee, said 'neither the amounts nor the scale' of the huge loans had been made clear to Lloyds shareholders.



He said: 'If shareholders can't trust a prospectus and the public can't trust the Bank of England's accounts, who can they trust?'



Many shareholders feel their once prudent bank has been polluted by the purchase of the effectively insolvent HBOS.



The deal was agreed at a cocktail party in September last year during a private discussion between the then Lloyds chairman Sir Victor Blank and Gordon Brown.

Two separate action groups of private shareholders are planning legal action against Lloyds, which has been known as Lloyds Banking Group since the takeover deal was completed in January.

Yesterday they spoke of their fury at the secrecy, which the Chancellor insisted had been vital in order to protect 'financial stability'.



A spokesman for Lloyds Action Now said: 'It is completely outrageous and an absolute scandal that details of the loans were not disclosed.



'This confirms what we have suspected for a long time - the directors of Lloyds knew all along that HBOS was bust, and this information was withheld from the shareholders.'



The Emergency Liquidity Assistance given to HBOS by the Bank started on October 1 last year and reached a peak of £25.4billion on November 13.

Just six days later, Lloyds held a general meeting where shareholders voted overwhelmingly to buy HBOS - but they did not know about the size of the loan. By January 16 this year, just days before the deal was officially completed, all the money had been paid back.



At the time, Sir Victor said he was delighted that his shareholders had 'endorsed the compelling strategic logic for this transaction'.



But Alice Beer, former presenter of the BBC's Watchdog programme, and director of campaigning for Lloyds Action Now, sees things differently.



'There are thousands of shareholders who are not fat cats, but ordinary men and women who have invested their life savings in what was Britain's safest bank,' she said. 'The way they have been treated is nothing short of a national disgrace.'



Another action group, Lloyds Private Shareholders Action Group, said many shareholders have been left 'in penury.'



Many were pensioners attracted by the generous dividend paid by the bank every year, which had a reputation for being safe and steady before the HBOS deal.



Nick Shaw, a retired businessman who co-founded the group, said: 'Many shareholders tell me that they put their entire nest egg in Lloyds because it looked like a Rock of Gibraltar.



'Now they say their nest egg has gone and they are living on a state pension.' The massive cash injection for HBOS was kept secret because it was feared publicity-would trigger a panic and a re-run of the Northern Rock fiasco.



It was only on Tuesday at a Treasury Select Committee that the Bank of England governor Mervyn King decided to reveal the Emergency Liquidity Assistance given to HBOS.

Yesterday the Chancellor was forced to make an emergency statement to the House of Commons about the secret loan.



Alistair Darling told MPs that he fully supported Mr King's decision to keep the lifeline a secret.

Yesterday a Lloyds spokesman admitted that the size of the loan had never been made clear to shareholders.



In the mountain of paperwork sent to its shareholders, the small print contained details of Bank assistance, but not the size of the handout. He said: 'Lloyds issued a circular to its shareholders on 3 November 2008 for the purposes of its acquisition of HBOS.



'The disclosures in this document contained all information which was required to be included about Lloyds and the enlarged group.



'The circular contained information on the risks relating to Lloyds and the enlarged group post-acquisition including its continue reliance on government liquidity schemes.'



Mr Brown's spokesman later confirmed that the Prime Minister had been aware of the loans.



'He and the Chancellor were obviously aware of this - it was a very big sum of money and it was a very important decision made by the Bank of England,' he said.