Lloyds Banking Group' shareholders are suing the lender for being allegedly misled in order to win their backing for the controversial takeover of Halifax Bank of Scotland (HBOS) in the autumn of 2008.
Speaking at the High Court, Richard Hill QC, for the shareholders, they feel like they were "mugged" by the bank and its former directors, when they were persuaded to back the takeover of HBOS.
"We are saying that shareholders were mugged in this acquisition and should never have been kept in the dark. Disclosure was not made by the Lloyds board."
The shareholders claim the bank failed to tell them HBOS was "effectively" bust before the transaction was completed.
HBOS had received a covert loan from the Bank of England under the UK central bank's Emergency Liquidity Assistance framework totalling £26bn.
Additionally, the bank had also received covert financial support from the US Federal Reserve, then totalling £11bn. After announcing the intended acquisition, Lloyds had secretly loaned HBOS a further £10bn
HBOS had also received covert financial support from the US Federal Reserve equivalent to £11bn ($14.5bn) at the time.
Hill told the High Court, shareholders were told in September and October 2008 there had been no significant change in HBOS's financial position when it had suffered a run on wholesale deposits, and was surviving on emergency lending from Lloyds.
"The directors knew it; and they told shareholders the opposite. [Former chief executive] Eric Daniels was informed by government on 17 September 2008 that if he didn't announce a deal by the next day, then HBOS would have to be nationalised."
Yet when the deal was announced the next day, then Chairman Sir Victor Blank called it "a good deal for customers and shareholders."
Hill also said sector analysts were told HBOS had "robust capital" and "very strong liquidity" – despite having received billions is aid.
A confidential OFT document also disclosed in the High Court said: "HBOS strongly believes that if the merger with LTSB [then Lloyds TSB] were not to take place, it would no longer be credible for HBOS to continue as an independent bank without at least some form of assistance from the tripartite authorities."
Defence documents submitted to the court refer to support for the acquisition from the regulator at the time, the Financial Services Authority (FSA). Lloyds said it would contest the shareholders' claim vigorously.