In what is seen as the first American-style class action to hit the English courts, Lloyds, which is suing RBS through nine of its pensions and investment management subsidiaries, has joined more than 40,000 individual and institutional investors already seeking redress from RBS.
Lloyds' £420million claim takes the total for all investors suing RBS in the High Court of Justice of England and Wales over the rights issue to nearly £5bn.
The bank has joined forces with the RBoS Shareholder Action Group. More than 31,000 retail investors have signed up to the group's claim, more than 4000 of whom are current or former RBS and NatWest employees.
A spokesman for Lloyds insurance arm, Scottish Widows, said: "The management in the relevant insurance businesses gave careful consideration as to whether it was in the interests of policyholders to join the legal proceedings and decided it was in their best interests."
The action group claimants allege that, in April 2008, the RBS board, led by chairman Sir Tom McKillop and chief executive Fred Goodwin, misled them into pumping billions of pounds into the bank's shares after painting an overly positive picture of the bank's financial health.
They claim RBS failed to disclose the weakness of the bank's capital position; that its risk management and controls were fundamentally flawed; and that the part of ABN Amro bought by RBS was materially overvalued on the bank's books.
Shares that investors were persuaded to buy for £2 each in June 2008 had fallen to 11p by January 2009, a 94.5% collapse. Investors are still 83.6% down on their original investment.
The action group has extended the deadline for other investors to come forward to June 6, the sixth anniversary of the rights issue. Nearly all of the UK's leading institutional investors and fund management groups are suing the 81% Government-owned RBS. Of the top 25 investors in the 2008 rights issue, only five are at present not claiming: Barclays, F&C, Fidelity, Norges Bank Investment Management, Schroders and State Street Global Advisers.
The action group is also suing four past RBS directors: Fred Goodwin, Sir Tom McKillop, Johnny Cameron and Guy Whittaker. Mr Goodwin and others are expected to be called as witnesses when the case goes to trial, but that is not expected before 2016.
Other groups suing RBS include Stewarts Law, which represents 313 UK and international institutional clients, including the Strathclyde Pension Fund, and Quinn Emmanuel, which is representing five of the UK's biggest institutional investors: Aviva, Legal & General, Prudential, Standard Life, and Universities Superannuation Scheme.
A fourth group represented by law firm Leon Kaye represents 4200 retail investors with claims worth £22m.
RBS rejects allegations its former directors misled investors or acted illegally.
Chief executive Ross McEwan said earlier this month: "These things will be set out in court rather than in an early settlement. We have a good defence on this."
Lloyds entities that filed papers to sue RBS earlier this week are: Scottish Widows PLC, Scottish Widows Unit Fund Ltd, Pensions Management (SWF) Ltd, Scottish Widows Unit Trust Managers Ltd, Clerical Medical Investments Group, Halifax Life, Clerical Medical Management Fund Ltd, HBOS Investment Fund Managers Ltd and St Andrews Life Assurance.
The timing of a trial is expected to be set soon.