Academic journal article ABA Banking Journal

Mergers: Covering Your "Tail"

Academic journal article ABA Banking Journal

Mergers: Covering Your "Tail"

Article excerpt

You can't sell your way out of potential trouble. You can only do your best to protect yourself from liabilities as a bank officer or board member before and after sale or merger of your bank.

The deal takes on a life of its own and can crowd out other, important thoughts, such as who covers the directors and officers after the bank that used to indemnify and insure them goes away. Board members and officers, focused on shareholder interests, need to remember self-protection and insist on insurance, suggests attorney Jim McAlpin.

"You'll negotiate for indemnification by the acquirer," says McAlpin, partner at Bryan Cave, Atlanta. "But I like to see that indemnification backed up by [D&O] insurance."

"In significant acquisitions," continues McAlpin, "the cost of this insurance is often a rounding error." Even in a smaller deal, boards and managers of the seller must keep in mind protection for themselves, not just shareholder value.

Understand that the D&O policy of the acquired institution will most likely stop covering the insureds for any new activities the minute the merger is completed. However, this is not the end of the story, explains Mike Read, marketing and sales manager at the ABA Insurance Services D&O program. …

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