A multimillion-pound case brought by Lloyds shareholders over the acquisition of HBOS is "fundamentally flawed at every level", the High Court in England has heard.
A group of 5,803 former Lloyds TSB shareholders claim they were "mugged" when the bank recommended the January 2009 deal without disclosing HBOS's true financial state.
They are suing Lloyds Banking Group, former chairman Sir Victor Blank, ex-chief executive Eric Daniels, former chief financial officer Tim Tookey, one-time director of retail banking Helen Weir, and ex-director of wholesale banking George Truett Tate over alleged losses of more than £550 million.
Richard Hill QC has said the directors recommended the "disastrous" acquisition when, based on information they had, no reasonable director would have done so.
They knew that HBOS had suffered a funding failure, could not meet its obligations and was on "emergency life support" from the Bank of England and Lloyds.
He alleged they "rushed" into agreeing the deal without any proper analysis and the circular sent to shareholders deciding how to vote was a "highly misleading" document.
The acquisition left Lloyds saddled with toxic assets and it was later forced to take a Government bailout worth £20.3 billion, which has been blamed in part on the takeover.
Helen Davies QC for Lloyds told Mr Justice Norris in London on Thursday that the allegations of wrongdoing were "entirely devoid of merit" and the unprecedented claim was "legally unsustainable".
"The claimants' case is fundamentally flawed at every level", she said.
The acquisition took place in extremely challenging market conditions and, by necessity, over a relatively short period of time during which the general economic situation changed radically and rapidly, the court heard.
The Lloyds board, the majority of whom were shareholders, believed that, whilst HBOS had been significantly affected, it remained an excellent franchise with the potential to bring considerable benefits for the shareholders, Ms Davies said.
She said that in various respects, the court had been presented with an "inaccurate or misconceived" picture of the underlying facts.
The directors giving evidence would explain the "careful and thorough" process undertaken with the assistance of a "veritable army" of internal and external expert advisers in assessing the acquisition - and why they were each firmly of the view that it was in the best interests of Lloyds and its shareholders in the light of the information available to them at the time.
She added that one of the big problems in the case was that so much of it was based on hindsight.
At the time of acquisition, HBOS was a "fully-functioning bank" which continued to trade despite the serious liquidity issues it was undoubtedly facing.
"We do not accept that it was not something worth acquiring," she said.
The hearing was adjourned until Friday.