The International Who’s Who of Banking Lawyers has brought together four of the leading banking lawyers in the world to discuss refinancing and restructuring in the market, regulatory developments, competition in the legal marketplace and geographical banking hotspots.
Pinheiro Neto Advogados
Who’s Who Legal: Have you seen a change in the type of financing work you have been doing recently? Do you find that your practice is more focused on restructuring, or is there still a good amount of traditional financing work in your jurisdiction?
John Field: In the Australian finance market, loan transaction volumes have been well down in 2012. The emphasis has been on restructurings and refinancings, with some continuing new lending in the resources sector. Property lending remains subdued. There has, however, been a recent revival of activity by major corporate issuers in the domestic bond market.
Michael Steen Jensen: Following the start of the financial crisis in 2007/2008 we have been, and still are, deeply involved in the rescue and public takeover work of Danish banks and credit institutions in financial difficulties. We are also still seeing a lot of reconstruction work on larger Danish companies as well as refinancings of syndicated loans.
Generally, Danish banks and credit institutions have been met with a regulatory demand for an increase in the capital requirement and thus a greater need for strengthening their capital base while at the same time funding has been difficult to obtain for many banks. As a result the banks and credit institutions have been seeking to reduce their loans, increasing their margins and lending rates and have been reluctant to provide loans to smaller and middle-sized businesses. Moreover, it has been increasingly difficult for borrowers to obtain financing with long maturities and participation from banks and credit institutions in long-term financing projects, ie, windmill parks and infrastructure. These circumstances have, amongst other things, contributed to an overall decrease in the availability of credit.
That being said it seems that the amount of traditional financing work is slowly increasing again and another positive tendency in correlation with the future granting of credit is that the deposit deficits in banks and credit institutions have been substantially reduced, which could be taken as a sign that necessary reduction of loans initiated by the banks and credit institutions has been successful.
Bruno Balduccini: PNA answer we have demand for both kinds of transactions: loans and restructuring loans. Since there are a lot of investments in Brazil the need for regular loan transactions continues normally.
Jacques Richelle: In Belgium, restructuring work has remained limited despite the financial crisis. It seems that most large corporates have remained in good financial shape. They have accumulated reserves and limited new investments.
Certain leveraged financings have been restructured, but not in a dramatic way: there have been amendments to covenants, some equity injections and the like.
In the real estate sector (offices, hotels, etc), many financings have been extended. While, in the current markets, investors may not sell properties at attractive prices and do not find alternative sources of financings, the overall letting situation has remained strong enough to allow investors to continue to pay interests. Banks prefer to extend than take a loss in case of enforcement of security.
New banking deals are fewer, both because investors are more cautious and because banks are more strict in credit conditions. While 2011 had seen an unexpected surge of leveraged financings, 2012 has been quieter on that front. Most deals are done with clubs of Belgian banks.
Many Belgian corporates have issued notes recently, both to Belgian retail and Belgian or foreign institutional investors. PPPs remain a stable source of business for law firms.
Who’s Who Legal: Our research highlighted that shadow banking by NBFIs is providing an increasing source of work for lawyers as traditional banks are less active. Is this the case in your jurisdiction? Are there any other trends affecting the banking market?
Bruno Balduccini: We do not see this in Brazil. However we are facing regulatory changes that aim at dealing with mobile payments/financing and e-wallet structures.
Jacques Richelle: It is a similar trend in Belgium: we do not see NBFIs, and corporates turn more to the bond market.
John Field: NBFIs have struggled in the Australian market in recent times (eg, the recent collapse of the Banksia Financial Group). As bank lending remains subdued, we have seen major corporates turning to the bond market, both domestically and in the US 144a market.
Michael Steen Jensen: In our experience, the majority of all lending activities in Denmark are still being conducted by traditional banks and credit institutions. However, in terms of other trends affecting the banking market, recent developments in the Danish loan market show that corporate bonds seem to be gaining in popularity as an alternative to traditional commercial lending. At the same we have seen a substantial increase in export credit financing provided by the Danish export credit agency, EKF.
Who’s Who Legal: Have there been any recent regulatory changes which are having an effect on banking in your jurisdiction? Do you think these effects will continue into the foreseeable future?
Bruno Balduccini: As mentioned before, we will undergo regulatory changes on the means of payment. We do not know at this moment where we are going to land but we are waiting for Central Bank regulations.
John Field: The biggest regulatory change in the Australian market has been the introduction of the Personal Property Securities Act earlier in 2012. This has affected all forms of secured financing for almost all types of property (except land), as well as other forms of financing (eg, leases of goods and retention of title arrangements) that have not traditionally been regarded – except in the US and other jurisdictions with similar PPS legislation, such as Canada and New Zealand – as involving security. The legislation is based on that in New Zealand, but with major differences (eg, it runs to some 300 pages as compared with some 100 in New Zealand), and its impenetrable drafting is predictably giving rise to significant uncertainty, which is likely to continue at least until some test cases arise and progress through the courts.
Michael Steen Jensen: There has been an overall tightening of the regulatory system in Denmark due to the large amount of bank failures, including a tightening of the requirements applicable to board members of certain Danish financial institutions, new anti-money laundering requirements, tightening of the depreciation rules as well as implementing new rules in relation to calculation and enforcement of solvency requirements. It is our opinion that the increased supervision with the financial sector will continue.
Jacques Richelle: Belgium will be impacted by the upcoming changes in EU and other international rules (including on capital adequacy). The Belgian government recently confirmed its intention to separate deposit/commercial banks from investment banks. No details are yet available.
Who’s Who Legal: As the global banking market becomes more challenging, is the legal marketplace becoming more concentrated and competitive? How are firms in your jurisdiction coping with this?
John Field: In the last 12 months in Australia, a number of major law firms have merged or formed alliances with international law firms. This has been partly in response to client demand as global transactions increase and regional transactions – especially financing transactions – require English or New York law capability. It has also been partly driven by the opening in Australia of several magic circle firms.
Michael Steen Jensen: We agree that the legal marketplace has become more concentrated and competitive, and as a result Danish law firms have to work harder to remain in the top. Generally, it is our experience that there are more firms competing over fewer transactions and several Danish firms have merged to be able to compete with the larger full-service firms.
Bruno Balduccini: Yes, concentration is inevitable. We are also seeing more structures and sophisticated transactions in our market.
Jacques Richelle: The Belgian banking legal marketplace is becoming more competitive because there are fewer deals, but not more concentrated. While there have been moves of banking lawyers between law firms, there have been no merger or new market participants these last years.
Competition leads to pressure on pricing. Banking lawyers look for new markets (Africa, PPPs, debt finance, etc).
Who’s Who Legal: As many countries are witnessing a downturn in traditional banking activity, are there any jurisdictions emerging as strong in the banking sector? If so, why do you think this is and might there be an effect on the global marketplace?
John Field: In Australia, we are seeing a continuing investment appetite from countries such as China and Japan for quality assets, especially in the resources sector, and this is generating a demand for finance.
Michael Steen Jensen: We have not witnessed any particular changes with respect to the jurisdictions that we are providing our services to. Our primary business is still provided to clients and law firms originating from the major European jurisdictions and the US.
Bruno Balduccini: Brazil had always a strong banking market. Especially now that the capital markets are down the banking market continues to grow at a steady pace.
Jacques Richelle: Post-Lehman, a number of foreign credit institutions have greatly reduced or stopped their activities in Belgium (Europhypo and other German banks, Barclays and other UK banks, Irish banks, etc). Two Chinese banks have started operations in Belgium, but on a limited scale.
The market is pretty much controlled by Belgian banks at the moment. It is yet unclear if emerging-markets banks have the potential and willingness to compete with Western banks in the European market.