JOHN MICHAEL SHARP And the other Claimants listed in the GLO Register v SIR MAURICE VICTOR BLANK JOHN ERIC DANIELS TIMOTHY TOOKEY HELEN WEIR GEORGE TRUETT TATE LLOYDS BANKING GROUP PLC [2019] EWHC 3096 (Ch)

"Whilst HBOS has been significantly affected by recent challenging marketing conditions, including the deteriorating economic environment which has negatively impacted its funding model, the Lloyds TSB Directors believe that HBOS remains an excellent franchise with the potential to contribute substantial value to the Enlarged Group."

"Based on a review of non-public information provided by HBOS, Lloyds TSB has made a preliminary assessment that net negative capital adjustments of no more than £10 billion after tax would need to be made to HBOS's financial position for Core Tier 1 capital purposes as a result of the Acquisition. The amount of the capital adjustments takes into account the elimination of the HBOS available for sale ("

"Due to the severity of this dislocation which has catalysed unprecedented levels of government intervention around the world and extraordinary uncertainty facing the banking industry in the medium term, and the availability of the UK government facilities described above being conditional upon, inter alia , the passing of various resolutions including those relating to the Acquisition, the United Kingdom Listing Authority has agreed that a statement regarding the adequacy of working capital for at least the next 12 months should not be required in this document."

"…there has been no significant change in the financial or trading position of the HBOS Group since 30 June 2008 the date to which HBOS's last published interim financial information… was prepared."

"The assets in the liquidity portfolio are treated in two forms. Firstly, assets which we know to be eligible under normal arrangements with the Bank of England, the European Central Bank and the Federal Reserve, which for internal purposes we describe as primary liquidity. Secondly, a substantial pool of high-quality (secondary) liquidity assets that allow us to manage through periods of stress taking into account the likely behaviours of depositors and wholesale markets. The Group routinely uses the repo market as a liquidity management tool and has well established relationships with a wide range of market participants. The Group also has access to the standing facilities at a number of central banks."

"? Capital - the potential need to raise more than the consideration level due to the need to rebuild ratios as a result of -fair value accounting under IFRS3 -the impending CP [ sc. the "bancassurance" adjustments ] -Basel II [ sc. the focus on the nature of Core Tier 1 capital ] ? Valuation issues around the value of our offer driven by uncertainty around market pricing of Lion [ i.e. Lloyds ] paper against the background of the capital position ? Day-to-day funding where there is a tension between the need to reduce the size of the asset book to maximise funding flexibility and the potential to realise capital losses given current market valuations"

"I did not feel that he was trying to place any pressure upon Lloyds to proceed with the acquisition if it did not wish to."

"This was the moment at which the deal became a realistic possibility."

"A further fall in the Dover share price that morning underlined the urgency of the situation so far as Dover were concerned. However competition issues and liquidity issues would need to be addressed for an acquisition to proceed."

"…..as head of corporate development, my professional obligation is to, in the end, present facts and assessments as I see -- how shall I say? -- justified, because my name is behind it, and, you know, there were -- I can recall at least one instance where Eric Daniels wanted me to present a particular position to the board where I said, "

"The FSA stated this morning that it was satisfied that HBOS was a well capitalised bank. However, if the merger stories turn out to be true it is likely that HBOS would have been forced into it as they feared that they could not adequately refinance wholesale funding when they needed to. If the merger does go through without any government money (and this is conjecture – the merger stories are still only stories) this may actually be a positive sign that the market can behave as it is supposed i.e. if a bank gets into trouble it is taken over by a stronger bank. The problem will be if Lloyds walks away or has to be offered tens of billions of pounds of public support to do it (Northern Rock was tiny in comparison to HBOS). In the normal course of business there would also be significant competition issues as well. If the merger is progressed, together the two banks would have 28% of the UK mortgage market, though it is highly likely that for the sake of market stability these problems would be ignored or deferred until later."

"… when you have impairments… they are not losses at the moment you identify them as impairments: they are what you anticipate may be losses over a period of time. And with a quality team, you can often make the position much better than your worst assessment impairment."

"The market will focus immediately on the enlarged group's pro forma tier 1 ratio. A likely cut in the dividend, the future emergence of synergies, and plans for potential disposal/RWA reduction are all positives, however the market will want to understand what immediate buffer you will have against future losses (and existing marks that are required in HBOS's book) as we enter a downturn in the UK economy… Shareholders will want to see a clear liquidity plan in place to ensure the enlarged bank can access sufficient liquidity at economic margins to fund existing and future business. While government support will aid liquidity, this is not a permanent solution to liquidity and your shareholders will want to know how this will be addressed over time without central bank support…"

"In the short term HBOS had a bit of wriggle room. But with the money markets shut and no guarantee it would be able to access funding, in the long term it faced administration."

"[HBOS] was working on a funding plan with the Bank of England but had had difficulty in accessing the Bank's special liquidity scheme for reasons which were not entirely clear. In parallel, it had become apparent that HM Treasury were becoming increasingly concerned about issues concerning Bradford & Bingley…. "

"….that's not necessarily clear… We are an interbank lender and this is something that is a normal part of any clearing bank…. We had interbank lines out to virtually every bank in the UK in virtually every one of the major banks across the world. "

"Q: You wouldn't have been lending this amount of money under these terms to this institution in the situation it was if it were not for the acquisition ? A: That's not completely clear … What we had said is that we wanted this to be completely arm's length, so in other words there was no guarantee that this deal was going to go through, so what we wanted to do was to make sure that we insulated Lloyds from that risk, and we would have done the same with any other institution. So it was priced by us, it went through our credit process, and we felt comfortable that, should there ever be a default, that we will be able to collect against it. Q: But Lloyds would not have chosen to expose itself to amounts of this size, to an institution in the circumstances, or to enter into a facility on these terms, were it not for the acquisition? A: Again, that is not clear…. Interbank lending is part of what we do – or …..what Lloyds did, and we had other interbank facilities with… virtually every other bank… The facilities were done for varying reasons, but they were all interbank lines… We were desirous of keeping HBOS funded until completion, there is no question about it, but we priced it at a commercial rate, we set the price and we were very happy with the return and, again, it was done on an arm's length basis …. "

"If this is the case I would want the FSA to explicitly endorse the transaction and all its risks…… If we are under pressure from one part of the tripartite…. to carry out this transaction as part of a wider rescue operation then the FSA should be made fully aware of the risks we are having to take on behalf of [Lloyds] depositors and shareholders and explicitly endorse the transaction. From my reading of the paper they are being asked rather narrow technical questions…. rather than the big question over the appropriateness of the transaction and the risks associated with it both for [Lloyds] and the system as a whole."

"…what I was saying was that the way the capital was to be raised was discussable… Whether or not that capital was going to be raised from the market, by share issuance, whether it was going to be raised by government money or whether it was going to be raised by disposals was discussable. So the methodology of raising was discussable and the way the FSA would assess whether the plan being put forward was feasible would obviously be exercising judgement. So my role here was to engage in those conversations around the methodology of the capital raising…. The amount of money had been calculated: I was open to discussion as to how that money was being raised… The amount of capital… that the standalone Lloyds at that time had to raise was not discussable. What was discussable was how it was being raised, and therefore whether all of it had to be raised as external capital from shareholders..."

"All I can tell you is what I've told you now a number of times: that unless they pointed out to us inaccuracies in our calculation, the amount of capital that… the standalone Lloyds at that time had to raise was not discussable. What was discussable was how it was being raised, and therefore whether all of it had to be raised as external capital from shareholders. That is the way it was."

"… [So far] as I was concerned, he could engage with me either to point out factual inaccuracies by the team, in which case obviously as the chief executive I had responsibility to engage with that – he did not do that – or he could engage with me around the questions of judgement which were principally focused on how the capital was to be raised. I was certainly taking responsibility for those questions of judgement…. He may well have chosen… to continue to want to return to some earlier questions, but that doesn't mean I was in any [way] open to returning to those earlier questions."

"Update on the deal and on the terms being IMPOSED on us which effectively force us to do it.."

"How much you have to raise – be it more or less than £7bn– and the extent to which you can look to us to take some of the new capital on the original terms will have to be renegotiated: you cannot assume that what we said on 13 October holds good now because things have changed"

"That is absolutely a conclusion I do not agree with"

"Notwithstanding these interventions it remains the view of the Bank of England that the proposed takeover should proceed without delay. Now, as in mid-September, we see risks to UK financial stability in the event of a failed transaction. Foremost amongst these is the risk of leaving HBOS without a credible long term strategy and the associated loss of confidence amongst depositors and market counterparties that would be likely to emerge. Both could seriously undermine confidence in the consistency and effectiveness in the authorities' recent interventions which have been key to re-establishing confidence in and the stability of the UK banking sector."

"…whether or not the UKLA requires the statement, neither our board nor the sponsors would wish to enter into the transaction without satisfying itself, through their own review and that of the reporting accountants, as to the adequacy of resources.."

"Lloyds believes that, despite the current financial turmoil, taking into account all of these sources of capital and liquidity, the Enlarged Group has adequate resources to support its business activities over at least the next 12 months."

"[I]t would be deeply unfair to categorise someone of the calibre and pedigree of Jim Spowart as some kind of misty-eyed kilt-wearing extra from the Brigadoon School of Management and Business studies ."

"…. There are many who think they are letting their brave hearts rule their cool heads…. To put it at its most brutal, the argument is this: that HBOS is the dead parrot of banks. They claim that, in effect, HBOS is no more; it has ceased to be; it has expired, it has gone to meet its maker. You know the rest…"

"Our latest view on the economy is that we are effectively now in a 1-in-25 economic scenario with strong similarities to the 1-in-25 stress we have been deploying. "

"Q: … When you were expressing your views as to the assessment of the acquisition in your reports…. you understand that it wasn't relevant whether you personally disagreed with the assessment, but the relevant question is whether the assessment was one no reasonable person could have made? A: Yes …. Q: So therefore it's relevant at each stage to consider whether or not the view that was taken by the Lloyds directors was a reasonable one? A: Given all the information that was available to them, yes. Q: Because you see…. we don't read in your report any acknowledgement of that approach. You, at various points, express views and criticisms, without assessing the question of whether or not the view that was taken by the Lloyds board was one that a director in the position of the Lloyds board could reasonably have taken at the time. A: Well, I wasn't asked directly to address the operation of the board…. Q: You were seeking to do your best, were you, to put yourself in the position of the Lloyds board at the time the decision was actually being taken, by reference to all the information that was available to the Lloyds board at that time? A: … I can't honestly say that I wrote my report from the position of the Lloyds board… Q: … What you did – isn't this right – is look at all the material that is now available and express your personal views as to whether, by reference to the benefit of that information, you personally would have reached a different decision? A: Yes, but I think that doesn't exclude whether the board would have also …. made a reasonable decision, based on the information that I had, given that they have that information too. Q: Well, as we've discussed a number of times, with any judgement there is a range of reasonable responses or decisions to be taken, aren't there? A: There are indeed, yes. Q: And within that range – it comes back to our sort of fan chart of possibilities – you can have a range of outcomes, all of which are reasonable..? A: Yes. Q: And what it doesn't appear from your report that you are seeking to do is to look specifically at the question whether the decisions taken by the Lloyds board were or were not within that range of reasonable decisions? A: Right…I didn't write my report from the perspective of a fan chart of probabilities or possibilities available to the board. No, I didn't. Q: …You didn't write your report…by reference to the range of reasonable responses of the board either? A: No"

"Q: You've just said that you don't believe the transaction should have been recommended because the risk was too great: yes? A: Yes. Q: What I want to understand from you is whether you are seeking to suggest that no reasonable board of directors in the Lloyds board's position could have recommended the transaction to the Lloyds shareholders, bringing us back to this range of views. A: Are we back to the fan chart? Q: Yes. A: You know, I guess we are in the middle of that fan chart. Q: So it was a reasonable view, but not one you agree with? A: That's – you know, it was – Yes, I would agree with that. "

"They're operating under HBOS figures prepared by HBOS management, reviewed by their executive committee, their board, challenged by KPMG, a Big Four accounting firm, the economic conditions set – approved by the regulator, discussed and realigned as to corporate insolvencies…with our own team."

"..was an amount merely "allocated" to Lloyds and most if not all of which would be required to absorb the losses HBOS was projected to incur."

"What we have to do is to…choose a scenario that we believe is probable and then look at a downside. And if the probability of that downside reaches a significant level, then what we have to do is talk about the risks that are attendant to that."

"...we knew about the sensitivity but we didn't expect the deterioration to be as rapid or as severe."

"I still believe that things had changed so much in those months that there is absolutely no way that I could have understood by the end of October or that any reasonable director by the end of October could have imagined the world as it would look months later, by the middle of February."

"The circular to shareholders must give a fair, candid and reasonable explanation of the purpose for which the meeting is called."

"how would the body of which I am part have reacted to an outside stimulus?."