Thousands of shareholders in Lloyds Banking Group have lost a multimillion pound legal battle against the bank over its takeover of HBOS at the height of the global financial crisis.

A high court judge in London dismissed claims that Lloyds executives had misled shareholders in recommending the 2008 takeover of HBOS, as well as not disclosing that HBOS had received emergency funding from the Bank of England ahead of the merger.

SFive thousand 800 shareholders, ranging from private citizens to large asset managers such as Goldman Sachs and Nomura, had brought the action under a group litigation order, claiming damages of as much as £650m.

By October 2008, Lloyds was on the brink, in part because of problems at HBOS, and was bailed out by the government, which bought a 43% stake at the cost of £20bn to the British taxpayer.The bank was privatised again, but shareholders were left with large losses.

The claimants had argued they were “mugged” by Lloyds and five former directors, including the former Lloyds chairman Sir Victor Blank and ex-chief executive Eric Daniels, both of whom testified in court.

The judge found that there were failures by Lloyds to provide information ahead of the takeover, but that these were not “causative of any loss”, in a judgment published on Friday.

Wayne Kitcat, a member of the clients’ committee bringing the action and a former Lloyds executive, said: “The decision of the judge is a bitter disappointment to thousands of Lloyds shareholders, many of whom have been left destitute by the acquisition of HBOS by Lloyds.

He said: “It makes no sense to us that the judge acknowledges that material information ought to have been disclosed, but does not believe that the Lloyds board deliberately concealed it, or that it made any difference.”

For Lloyds the victory removes one of the largest legal risks inherited by the chief executive, António Horta-Osório, alongside the payment protection insurance scandal.

A Lloyds spokeswoman said: “The group welcomes the court’s decision. Throughout this process, the group has sought to act in the interests of our shareholders as a whole.”

The judge, Sir Alastair Norris, found that shareholders “knew that the board assessed the chance of advantage as outweighing the risk inherent in the transaction” before 96% of investors voted in favour of the merger on the board’s recommendation.

The judge also found that the disclosure to shareholders of secret emergency liquidity assistance (ELA) worth more than £25bn from the Bank of England “would not have caused a sufficient part of the 96% majority to alter their vote (nor was there any real prospect of that occurring)”.

The dismissal of the case also represents a blow to Therium, an investment company specialising in funding legal action. A spokeswoman for Therium declined to comment on how much it had spent on fees.