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Conflict of interest issue arises

Thursday, June 13, 2002 | 10:07 a.m.

Some of the nation's biggest banks are being challenged for serving in dual roles as lenders and advisers to troubled companies.

The situation gives rise to conflicts, say the companies' creditors, adding that it is the inevitable result of banks' increasingly diverse roles, particularly in the two years since legislation eliminated the separation between investment banking and commercial lending.

Creditors of weak companies worry that banks may want to encourage quick asset sales so that their loans will be repaid in a hurry. The best hope for creditors, stockholders and employees may instead be a slower restructuring process that keeps the company intact for as long as possible.

"Potential conflicts have always been inherent in our business," responded Citigroup spokesman Duncan King. "Our obligation is to manage them appropriately, which is essential if we are to maintain our reputation for providing quality advice."

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