Shareholders could sue Lloyds over HBOS deal

Small shareholders were today considering legal action against Lloyds Banking Group after the high-street lender surrendered control to the Government.

The taxpayer's stake in the bank rose from 43 per cent to 65 per cent after the Treasury agreed to insure £260 billion worth of toxic assets.

Lloyds was forced to turn to the Government after its takeover of HBOS, which reported an annual loss of nearly £11 billion weeks after the deal's completion. Some 83 per cent of the bad loans under government protection came from HBOS.

Lloyds chairman Sir Victor Blank and chief executive Eric Daniels are under pressure to quit amid a howl of protests over the HBOS deal. Shareholders are furious it went through without proper checks being made.

The UK Shareholders' Association was today considering taking legal action against Lloyds. It came as Lloyds shares sank another 12 per cent or 4.9p to 37.1p. They have crashed nearly 90 per cent since the merger with HBOS.

Unions also fear the government deal will be quickly followed by substantial job cuts.

A legal battle would heap further pressure on Sir Victor and Mr Daniels despite Gordon Brown's support for the pair.

It would also be highly embarrassing for the Prime Minister as he agreed to waive competition rules to push through the HBOS merger.