Tim Tookey, cross-examined in London's High Court by a lawyer representing 6,000 shareholders claiming around 550 million pounds in damages over the deal, said he knew HBOS had had funding difficulties and that its shares were gyrating.
But he denied that Lloyds could have avoided paying a premium, or even the market price, for the struggling bank after the collapse of Wall Street giant Lehman Brothers in September 2008 left markets in turmoil.
"We, as the board, felt it was an appropriate price to pay," he said.
A shareholder group alleges that Tookey, four other former Lloyds directors and the bank concealed crucial information about HBOS's "parlous" financial state and breached their duties by recommending the reverse takeover in 2008.
Lloyds, Britain's largest retail bank, and the individual defendants, who include former chief executive Eric Daniels, ex chairman Victor Blank, Helen Weir, the former head of retail and Truett Tate, one-time former head of wholesale banking, deny any wrongdoing.
The former directors, who left Lloyds between 2009 and 2012, have been described by the bank as highly distinguished and experienced.
Investors allege Lloyds' failure to divulge a 10 billion- pound HBOS loan and billions more in British and U.S. central bank emergency support meant investors did not know HBOS "had failed" and "was worthless".
They allege the HBOS takeover, that valued the bank at around 5.9 billion pounds, wiped billions off the enlarged bank's market value. Lloyds itself then had to be rescued with a 20.5 billion-pound government bailout in 2009.
The bank has called the HBOS deal a "unique opportunity" to boost market share and realise cost-savings while the government, desperate to shore up plunging shares and investor and depositor confidence after the Lehman collapse, swept aside competition hurdles in return for an urgent deal.
Tookey said he had not been aware that HBOS faced nationalisation if Lloyds had walked away from a deal.
"I did not hear the nationalisation word," Tookey said, adding that Daniels, the former chief executive, had led the discussions on the price to pay for HBOS.
Much of the shareholder case hinged on "myth" and "hindsight" about the depth of the financial and unfolding economic crisis, which could not have been foretold, a lawyer for the bank has told the court.
The trial, which began a week ago, continues.
(Editing by Greg Mahlich)
By Kirstin Ridley