Research Trends and Conclusions: Banking 2012
With the benefit of over 10 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.
Speaking to lawyers about their experiences over the past year, one gathers that the banking legal marketplace is nothing if not varied. Continued economic turmoil in some regions has perpetuated, and even expanded, the mixed bag of work that banking lawyers have been dealing with since the financial crisis erupted in 2008. Our researchers received reports of increased trade finance, private wealth management and regulatory work, while others commented that although transactional work is still being carried out, its nature and purpose has changed significantly. Some practitioners were more positive about this altered legal landscape than others – when asked how they would sum up the year’s work responses ranged from “encouragingly busy” to “doom and gloom and then more doom and gloom”.
Last year we reported that activity levels were on the rise and, indeed, lawyers were cautiously optimistic at the start of the year, with many seeing a reassuring number of new money acquisitions and a corresponding decline in restructuring work. The private equity market was relatively busy, as investors gradually regained confidence and practitioners and clients alike were comforted by the return to familiar territory. However, the economic chaos in the Eurozone called an abrupt halt to this recovery in the summer, as the surrounding uncertainty sent banks, businesses and investors scuttling back to their bunkers until the situation improved. The overriding policy at this time seemed to be “wait and see” and one source reported that banks “all but shut up shop” until the end of the year as they waited for some resolution of the European debt crisis. In the words of one expert, however, “we don’t see anything changing quickly or dramatically” and some practitioners are now bracing themselves for a return to the levels of restructuring work they were seeing a couple of years ago.
Despite a general atmosphere of caution, the acquisition financing market has not dried up completely. Sources alluded to fairly robust activity in those areas deemed to offer the safest investments. Thus, we received reports of acquisition financing work in the energy, technology, infrastructure and internet sectors. Elsewhere, lawyers cited a change in the purpose of the transactional work being carried out. Much of it is strategic, designed to raise capital in anticipation of future higher capital requirements for banks – an issue described by one source as “massive”.
The caution being exercised by banks is being felt by all customers, with loans becoming increasingly difficult to obtain. Some of those we spoke to believe that the void in the consumer banking market will be filled by other large corporations with the necessary means to provide their existing customers with loans. This is a rapidly developing trend in banking and some firms are dedicating a considerable amount of time and expertise to this work in the expectation that it will become a staple part of their diet in future.
For those firms involved in it, regulatory work continues to occupy much of their time. In the words of one interviewee, banks have been “hit by a tsunami of regulation” over the past couple of years and compliance “has never been so important”. Regulatory work is particularly prevalent in the US, where there is a “backlog” of work arising from the ramifications of the Dodd-Frank Act, which is expected to keep lawyers busy for the next few years. Moreover, the improvement of bank regulation in the US remains a live issue and is an on-going exercise, with further regulations still being debated. Consequently, not only is there plenty of work advising banks on compliance with the rules that are now in force, but there is also a wealth of advisory work in relation to the consequences of other potential regulatory changes, an area that one source admitted “involves a lot of guess work”.
Many firms are working hard to diversify their banking practices. As one source put it, “the reality is that the banking legal marketplace is shrinking” and innovation is essential to maintain a competitive edge. To this end, many of the lawyers we spoke to are beginning to develop a private wealth management strategy. The Asian market is said to be particularly active, since private wealth arrangements in these jurisdictions tend to be tailor-made and are therefore more complicated, requiring a greater input from lawyers. Additionally, the high yield market continues to grow and is forming an increasingly important part of some banking practice groups.
The banking legal marketplace currently fosters a “survival of the fittest” culture, and it seems that the key to survival is flexibility. The volatility in the marketplace “isn’t going away any time soon” and, as one source commented, “we are not all sitting on our hands anymore. People are just getting on with things”. Those firms with the internal structure and experience to deal effectively with the new types of banking work performed well in our research, reflecting the demand for diversity and flexibility in the legal market. Some firms fared well because the necessary flexibility already existed within their group, others made a conscious effort to restructure their practices to reflect the altered demands of clients. One thing is certain: their efforts have paid dividends and with many practitioners predicting that the banking sector has changed irrevocably, it seems likely that other firms will soon follow suit.
‘A REBALANCING OF WORLD ECONOMIES’
By far the biggest trend that emerged from this year’s research was the ascendancy of the southern hemisphere in the banking legal marketplace, aptly described by one lawyer as ‘a rebalancing of world economies’. As the world’s traditional financial centres continue to struggle with the effects of the financial downturn, jurisdictions less affected by the credit crunch have developed and expanded their banking industries.
Several interviewees commented on the marked increase in “south to south” transactions, whereby international deals are made between southern states without either party feeling the need to divert the transaction through traditional centres such as London or New York. This is a recent and significant development, reflecting simultaneously the waning influence of the traditional financial centres and the surging confidence of Latin America and Asia in the banking sector. That is not to say that the West is becoming obsolete with regard to these transactions; they still have a lot of expertise and guidance to offer but the reality is that the landscape of global banking is changing. Banks are following the flow of trade and capital to these southern hemisphere states and the lawyers are not far behind. The banking trend in the southern hemisphere has been closely monitored by many law firms for years and it seems that now is the time for action. “The future lies in international presence” according to one expert and numerous elite firms are pouring significant resources and expertise into offices in jurisdictions south of the Equator. According to a partner at one magic circle law firm, 25 per cent of the firm’s partners are currently on secondment to a foreign office and it is anticipated that over a period of time, London will represent “a smaller proportion of a larger whole” of the firm’s banking practice. It is not only those firms in the highest echelon of banking practice that have made their mark on these new financial hubs. Smaller firms with local knowledge have also benefited from the uptick in banking work – in all of the Latin American jurisdictions represented in the graph below, the lists of featured lawyers are dominated by local firms.
The ascendancy of the southern hemisphere in the banking world is clearly reflected in our research. The number of listings earned by some southern jurisdictions has shot up in recent years, as shown in the graph below.
But while change may be afoot in some regions of the globe, the overall picture of the banking practices recognised in this book remains much the same. The nature of banking law institutions it affects means that the work always has, and probably always will, be shared out among a fairly small number of elite firms. The top seven firms emerging from this year’s research are the same as those in the previous four editions of this book – a reflection of the exceptional quality of their practitioners. Moreover, in times of economic uncertainty such as these, clients tend to flock to the biggest and best firms, which have high levels of expertise and the capacity to deal with the varied legal work that banking now produces. The consistently strong performance of each of the firms below is testament to the breadth of knowledge and experience they hold, allowing them to maintain fairly stable levels of work in an otherwise turbulent period.
The graph above charts the number of listings attained by each of the top firms in the last five editions. Each colour represents a jurisdiction in which the firm has a featured lawyer, making it clear how much emphasis these elite firms place on international presence. For the second year in a row, Allen & Overy has emerged as the world leader in banking and has, along with Clifford Chance, Linklaters and White & Case, earned more listings in this edition than in the previous year. In general, the performance of each firm has remained steady or improved, highlighting the high level to which the highest echelon of banking law has reached.
The graph of leading US firms paints a similar picture. The strength and variety of expertise of the attorneys at these firms has allowed them to maintain high levels of activity and consequently high levels of recognition in these books. Of particular note is the clear lead displayed by Sullivan & Cromwell over the past two years, which reflects the firm’s first class regulatory practice and the continued focus on this kind of work in the US. Similarly, Shearman & Sterling earns two more listings this year than in previous years, reflecting the increased levels of regulatory work that it has been dealing with and is recognised for.
Skadden Arps Slate Meagher & Flom makes its first appearance in the “leading firms” graphs for both the US and England. This achievement is especially notable as regards England, where international firms have long had difficulty competing with Magic Circle firms, in terms of featured lawyers.
For the most part in England, the top law firms have a higher contingent of leading practitioners than last year. This is an encouraging sign that certain parts of the market are beginning to pick up and that firms have responded effectively to the changing requirements of their clients.
The numbers of lawyers, firms and new inclusions have increased sharply this year, having experienced a decline or plateau in the previous couple of years. These figures are a reassuring indication that the banking legal marketplace has picked itself up and that, even if the focus of the work has changed, there is still plenty of work out there. It is instructive to note, however, that the number of new firms has not increased nearly as dramatically as the number of lawyers, reflecting once again the dominance of the elite firms in this market. That is not to say that there is no room for new players, however – 21 firms have lawyers listed in this edition for the first time, which is a significant achievement considering the market’s evolving and
fragile nature.
To quote one London expert, “this is a momentous period for the banking industry” and our research demonstrates that lawyers are making the most of the opportunities it has spawned. It seems clear that the nature of legal banking work has changed for good and law firms have embraced the need to adapt in order to survive. Whether by broadening its expertise or expanding into new jurisdictions, firms will go to great lengths to compete in this volatile sector and their success to date is testament to the exceptional quality of their practitioners.