As commercial banks build their advisory abilities, they are increasingly expecting to face legal and relationship challenges, particularly in hostile takeovers.
Just this Monday, ADT Corp. sued Chase Manhattan Corp., alleging it had violated its fiduciary responsibility by acting as adviser and providing a letter saying it was "highly confident" it could arrange a $900 million loan to support Western Resources' $3.5 billion unsolicited bid.
In the suit, filed in New York State Supreme Court, ADT claimed that Chase's actions were at odds with its position as adviser and lead lender to ADT.
"These kinds of questions used to be primarily problems for investment banks," said John P.C. Duncan, a partner in the Chicago law office of Jones, Day, Reavis & Pogue. "Now they are problems for commercial banks as well."
Last year, a number of commercial banks made a big push into advisory business. Bankers Trust New York Corp. acquired Wolfensohn & Co., Natwest Markets bought Gleacher & Co., and Chase hired a number of investment bankers to build its business.
Lawyers said that as banks build advisory abilities, the issue of so- called "Chinese walls"-divisions in the bank that keep separate the executives who may be working for competing corporate interests-demands increasing attention.
"As banks get larger, they are adding up and building their mergers and acquisitions departments," said Michael G. Capatides, general counsel and a managing director at CIBC Wood Gundy. "Being lenders to the Fortune 500 companies, sooner or later, they'll have an issue with this."
ADT wants the court to bar Chase from supporting Western, and it is seeking $50 million in punitive damages and an undetermined amount in compensatory damages.