Washington Steel Corp. v. TW Corp.: Bank Confidentiality in Corporate Takeovers

Abstract

The role of commercial banks in financing hostile tender offers has recently been subject to increasing public scrutiny.' Since larger commercial banks typically have an extensive network of corporate clients, it is predictable that the target corporation of a hostile tender offer will occasionally be a client of the bank financing the takeover attempt. A troubling question has arisen in this context as to whether the financing bank owes any duty of loyalty to the target, particularly when the target has entrusted the bank with confidential financial information in the course of their prior relationship. To date, the few cases that have dealt with the issue seem to have imposed a limited duty on the bank not to rely upon confidential information entrusted by the target in making its decision to finance the takeover. 2In Washington Steel Corp. v. TW Corp.,' however, the Court of Appeals for the Third Circuit recently suggested in dicta that commercial banks may use confidential information for internal purposes in the takeover context. This Note will argue that the Washington Steel decision goes too far in limiting the duties of a bank by failing to require the protection of confidential information from potential misuse. A bank need not be precluded from financing takeovers of its clients; however, internal banking procedures should be implemented to insu-I.