Eric Daniels, the most senior executive to take the stand in a trial where 6,000 shareholders are claiming around 550 million pounds in damages over the takeover, told London's High Court that although he was aware that HBOS could be nationalised if the Lloyds deal did not go ahead, the bank only acted in the interests of shareholders.
"I did not look at it as a rescue," Daniels said, while being cross-examined by a lawyer for the claimants.
Lloyds' takeover of HBOS in September 2008 came at a moment of high crisis for its rival, whose share price had plunged following the collapse of Lehman Brothers and concerns about its exposure to bad loans.
The deal valued HBOS at around 5.9 billion pounds. But as the economic recession deepened in the wake of the credit crisis, Lloyds itself had to be rescued with a 20.5 billion-pound government bailout in 2009.
Daniels, who led Lloyds from 2003 to 2011 and throughout the takeover, is one of five former directors who, along with the bank itself, shareholders allege concealed crucial information about HBOS's financial circumstances and breached their duties by recommending the reverse takeover in 2008.
"This was something we would do only for the benefit of our shareholders, we were not a charitable institution ... we've got a foundation for that," Daniels said.
Britain's largest retail bank and the individual defendants, who also include ex-chairman Victor Blank, former finance director Tim Tookey and Helen Weir and Truett Tate, the former heads of retail and wholesale banking respectively, deny any wrongdoing.
Lloyds is defending itself and its former executives against the claim.
The shareholders also allege that Lloyds should have told its investors about a 10 billion-pound loan it had extended to HBOS and emergency support its rival was receiving from the Bank of England and the U.S. Federal Reserve - information their lawyer has said showed HBOS was a "bust, failed bank".
Daniels said that around Sept. 17, 2008 the governor of the Bank of England at the time, Mervyn King, told him HBOS could face nationalisation if the takeover did not go ahead, confirming wide speculation in the market of this possibility.
But it was the funding issues HBOS was facing that provided a possible route towards a takeover, he told the court. The government had already suggested competition hurdles could be circumvented if the deal was done quickly.
The lawyer for the shareholders, Richard Hill, has alleged that Lloyds agreed to pay a significant premium to HBOS's market value and trading share price when its struggling rival was in fact "worthless".
Daniels said while the aim was to pay as little as possible the bank had to balance this with the need to convince HBOS's board and shareholders that they should approve the takeover.
"I would have enjoyed greatly paying less," he said.
The trial, which got under way in October, continues.
(Additional reporting by Lawrence White; Editing by Greg Mahlich and Keith Weir)
By Emma Rumney