Research Trends and Conclusions: Banking 2011
With the benefit of over ten years of research and thousands of votes from clients and private practitioners, Who’s Who Legal takes a closer look at developing trends in the banking legal marketplace worldwide.
The banking industry has never been as high up the international agenda as it has been in recent months, the attention it has received has been almost universally negative. Lehman Brothers, AIG and Merrill Lynch have fallen by the wayside, the travails of the world’s leading banks played a major part in the worldwide economic crisis, and where once the banks were bailed out by national governments, now countries themselves are looking for external support.
These historic times have inevitably had a knock-on effect for the practices of the world’s leading banking lawyers who we identify in this book, and the legal marketplace in which they practise. In general, the tone of the clients and private practitioners we spoke to in the course of our research was one of guarded optimism. Activity levels are beginning to rise, “although clearly we won’t be going back to 2006 levels any time soon,” in the words of one New York based expert.
The nature of the work has also changed. For a brief period there were large amounts of legal work arising from various government bank recapitalisation schemes, but for the most part this has now been completed and with the programmes now up and running, the work for lawyers has concluded.
Most of the lawyers selected for inclusion in this year’s publication have been focusing on distressed work, in particular restructuring, with some even describing it as a “boom”. The restructuring of real estate transactions in particular is now providing work for lawyers after being pushed aside in the immediate aftermath of the crisis. In the words of one nominee, “In 2009 banking lawyers became restructuring lawyers, and now we are banking and finance lawyers.”
However, as the markets begin to pick up, the make-up of an average lawyer’s banking practice is changing. One source characterised the situation: “Whereas 12 months ago an average practice was made up of 70 per cent restructuring to 30 per cent other types of financing, now the ratios have been reversed.” While restructuring work is expected to continue to provide the bedrock of work for this sector’s lawyers, other areas of activity are showing signs of life.
As the wider M&A markets flicker into life, lawyers are being called upon in relation to increasing levels of financing and refinancing work, and the capital and high yield markets in particular are also getting hotter. Lawyers cited the return of previously dormant acquisition finance work – a relief for some firms who had been “living on a diet” for the past couple of years – and mainstream LBOs are also expected to increase. Anecdotally, we received reports of bankers writing off 2011, while the current international political scrutiny has a profoundly limiting effect on bonuses, and instead positioning themselves for a period of greater activity in the new year when the industry is less in focus.
The consolidation of the banking market that has been predicted for many years in some countries is now widely considered to be “just around the corner”. The stresses of the crisis caused banks to turn their focus inwards, but now once again sights are being trained on potential acquisitions, with the impending higher compliance standards already leading to acquisition opportunities.
Furthermore, banks are leaning on the expertise of their outside counsel for a wider range of internal work for the banks themselves. Many have been called upon for supervisory work for recapitalised banks, while others have been working on share capital increases, insolvency clauses and contingency planning. Compliance requirements have been tightened across the board, and the expert advice of the lawyers we list is highly prized as a result.
Regulation
The political backlash in the wake of the banking crisis has sent out a wave of stricter regulation that is due to break on shores around the world in the coming months. This is the current single most active area for the lawyers listed in this book; “Regulation doesn’t make the banks happy, but it makes the lawyers and the auditors happy,” in the words of one interviewee.
Outside counsel are called upon to advise on the clean-up of issues recently brought to light, the banks’ ongoing internal rule-making processes and greater amounts of compliance work as regulators step up enforcement and governments aim to avoid a repeat of recent bailouts. Now that the details of some of the proposed regulations have finally been published – Basel III and The Dodd-Frank Act in the US in particular – lawyers are able to counsel their clients on the exact steps needed for compliance, and other potential ramifications.
What this means for lawyers and their firms is perhaps open to debate – in the words of one lawyer, “regulatory projects and working with government will make you famous, but they won’t make you rich” – but we received very high numbers of reports of clients asking for help dealing with the new requirements, in some cases leading to work levels “almost too high to handle”.
This altered landscape has raised some difficult questions for law firms about how best to structure their banking practices, and where to focus their resources to best service their clients. Many have shifted the emphasis onto a regulatory practice in recognition of the increased levels of work, with one leading authority underlining his philosophy of putting a regulatory focus always at the core of the practice, with transactional and capital markets work on top. Such an approach would now leave such a firm well placed to meet the current level of demands.
Law firms are now beginning to spread their risk in a more strategic way; where once it was possible to base a successful practice on a small number of elite clients, now it is often necessary to target a wider section of the market and aim to maintain a hedged and balanced client book. The larger firms are moving towards a more general financial institution advisory practice, rather than a more strictly banking-focused practice, which can include teams to advise specifically on Dodd-Frank, for instance, as well as further expertise relating to funds, M&A and capital markets to cater for the breadth of demand from clients.
But while the focus has shifted, the legal landscape has not changed dramatically – at least not in the highest echelon of the practice which we cover in this book. In most countries the high-end work is divided up between a relatively small number of major firms, and the market has remained stable. The firms that have been affected are those who were outside the mainstream but had traditionally made a good living in commercial activities, such as real estate finance, that have now dried up. For the major players, they have inevitably been hit from the drop in activity, but perhaps not as hard as they feared and many have taken the opportunity to restructure internally with the aim of becoming leaner and more competitive going forward. Some will have to rethink their strategies, for instance in relation to commoditised work that was previously extremely busy but has now fallen silent. However, their pedigree in this sector also brings advantages due to the new-found variety in the types of work the clients are calling for, which requires a higher level of expertise and hence still tends to go to the major players.
Overall the market appears to have consolidated around the traditionally strong firms, a conclusion seemingly borne out by the consistent performance of the top firms in the past four editions of this publication.
Leading firms in previous editions
These firms have earned the highest number of nominees in our previous four editions, and the relative consistency of their performances year on year reflects their continuing strength.
A similar pattern is discernable through closer inspection of our findings in the US and England, two major centres for this kind of work. In the US once again the leading firms are well established in our findings over the previous editions.
Leading Firms in the US
Some, such as White & Case and Mayer Brown, have grown their profile in recent years through an increase in the number of nominees selected for inclusion, but most have stayed fairly stable in terms of the recognition they receive from the clients and peers we canvass. The biggest winner in this year’s research is Sullivan & Cromwell, its greater number of selected nominees in this edition reflecting the firm’s pre-eminent banking regulatory practice, and the renewed emphasis on this type of work from clients.
In England the picture is similar, although it is instructive to note that in almost all cases the leading firms have smaller contingents of market leading practitioners than in previous years, reflecting the drop in demand for certain types of work.
Leading firms in England
This analysis of the last four editions also shows the difficulty international firms have in establishing a presence in terms of number of nominees recognised by our research, as while US firms such as Latham & Watkins, Kirkland & Ellis and White & Case have made an impact on our research in recent years, they have not yet been able to reach the levels of recommendation garnered by their magic circle counterparts.
This must be taken in context, however. The time span covered by our last four editions has encompassed some of the busiest, and also some of the most traumatic, times the banking industry has faced in decades, and the effects are reflected in our overall findings.
In the course of our research since 2006 demand for banking experts has grown, and the number of individuals recognised as world class in our publications has correspondingly increased. The high activity levels of 2006 enabled a greater number of individuals to gain the experience and recognition necessary to earn a place in our 2008 edition, while the crisis and the consequent urgent need for counsel saw a further rise in demand, and opportunity, for banking lawyers. However, in the course of the past year these sources of business have fallen away and this has had a stalling effect on the number of lawyers and firms who can claim to lead the field in this sector and a consolidation around the leading firms. Indeed, the number of individuals garnering recognition for the first time has dipped sharply, after increasing in the preceding years in relation to the greater opportunity in the industry.
Overall, the feedback we received in the research for this edition, and our findings taken in context with those of previous years, demonstrate the effect the recent turbulent times have had on the banking legal market. With the heady activity levels of 2006 now a memory replaced by lingering uncertainty, the marketplace for banking lawyers may now be moving in an unfamiliar direction.