Lender conflict
Conflicts of interest pose significant reputation and legal risks to corporate finance professionals. Investment banking, particularly mergers and acquisitions, has a larger risk of negative publicity and civil action than other fields of corporate finance.
- Because of the increased likelihood of conflict issues occurring, investment bankers must be more vigilant in discovering, analyzing, and managing conflicts of interest in such transactions.
- In many circumstances, investment banks can readily spot conflicts. In other circumstances, significant conflicts may not be as obvious. It is not feasible to establish a thorough description of what constitutes a “conflict of interest” however the term often refers to scenarios in which
- A company has several interests in a transaction.
- The presence of such numerous interests may undermine, or seem to compromise, the bank’s capacity to give impartial financial advice to its customers, as well as the bank’s ability to meet those clients’ reasonable expectations.
- Conflicts of Interest in Investment Banking:
- The bank or an affiliate has several clients that are interested in the result of a transaction or prospective deal.
- The bank or an associate lends to or invests in one of the parties to a transaction or prospective deal.
- The bank has important non-public information about a party or prospective party to a transaction that it cannot discuss with its customer.
- How to Avoid Conflicts of Interest?
- To reduce the reputational and legal concerns connected with transactional conflicts of interest, it is advisable to avoid:
- Providing financial advising services for every transaction between two opposing interests.
- Making equity investments in any deal involving two conflicting interests
- Providing or arranging funding in conjunction with the acquisition of a client
- Advising a client about an unsolicited proposal from another customer.