FSA PROBES £4BILLION RIGHTS ISSUE AT HBOS

Details of the Financial Services Authority’s (FSA) investigation surfaced in documents published alongside Lloyds Banking Group’s £21billion fundraising last week.

In its prospectus sent to shareholders, Lloyds revealed that the FSA was carrying out a supervisory review into disclosures by HBOS.

The probe centres on the £4billion rights issue launched by HBOS in April 2008, less than four months before the Lloyds takeover was announced. In the document Lloyds said it was “co-operating fully” with the FSA. The regulator and the company declined to comment .

When the rights issue was launched HBOS declared it was optimistic about prospects and was well placed to deliver long-term growth.

In its document Lloyds said regulatory investigations could lead to an increased risk of legal action or “public sanction”.

The UK Shareholders Association is considering a possible legal move. Spokesman Roger Lawson said: “We have always said one possible ground for complaint of the HBOS shareholders was that rights issue. There were a number of issues at HBOS, particularly their approach to risk management.”