The value of leaking deals

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The historic insider trading investigations, which has notched nearly 80 convictions or guilty pleas, may be having an effect on investment bankers.

According to a study from Cass Business School in London, commissioned by Intralinks, there was "significant pre-announcement trading" in the stock of a target company in 11 percent of cases in 2008 and 2009. However, over the next three years, that fell to 7 percent.

Banks and bank compliance units have impressed upon employees the need to hold sensitive internal information close to their vests.

As noted by Breakingviews, the "financial hazards of gossip have grown. In the boom years from 2004 to 2007, 88 percent of deals that were leaked, either accidentally or intentionally, went on to close. That was roughly on a par with non-leaked transactions. From 2010 to 2012, only 80 percent of tipped deals reached the finish line, while nearly nine out of 10 of the ones kept quiet made it."

Of course leaked deals can have some major benefits for bankers.

"Five years ago, the researchers discovered little difference in the takeover premiums paid for the two sets of deals from 1994 to 2007. Over the last few years, leaked deals attracted a sharply larger premium — 53 percent versus 30 percent. There's no indication of causality, especially as unauthorized disclosures can come from either sellers or buyers. Yet the implications won't be lost on advisers," Breakingviews reported.

While leaking a deal may increase shareholder value, it also hikes the chances that some people, perhaps unbeknownst to the tipper, will actually trade on that information. So there's a trade-off for banks. You want the target stock to react so as to get a higher premium, but you also don't want to be implicated in illicit trading. This is a big challenge for the compliance folks.

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