The ailing bank was taken over by Lloyds less than four months later.

According to the Independent on Sunday newspaper, details of the probe were published last week alongside Lloyds Banking Group’s £21 billion fundraising.

The documents state that the watchdog is “conducting a supervisory review into the accuracy and completeness of financial disclosures made by HBOS.” It added that Lloyds is fully co-operating with the probe.

At the time of the rights issue, Andy Hornby, who was HBOS chief executive before he became the pin-up boy of the banking crisis, announced that the bank was “well placed to deliver long term sustainable growth.”

He also spoke of being “optimistic” about the group’s business prospects.

However, in just a matter of weeks, US investment bank Lehman Brothers had collapsed and HBOS’s irresponsible lending and questionable approach to risk management faced intense scrutiny.

As its share price plummeted and confidence in the bank’s stability dropped, the Government arranged a hasty merger with Lloyds TSB and an initial bail out of £17 billion, becoming a 43% shareholder in the combined group.

In the documents, Lloyds says that the outcome of the FSA review is uncertain, but warned investors that it “may result in enforcement actions and public sanction, which could expose the group to an increased risk of litigation in addition to financial penalties.”