The International Who’s Who of Banking Lawyers has brought together three of the leading practitioners in the world to discuss key issues facing lawyers today.
Marcelo Lamy Rego
Pinheiro Guimarães - Advogados
Davies Ward Phillips & Vineberg LLP
Diana Wilson Patrick
Who’s Who Legal: With an almost universal drop-off in transactions in the past year, what types of work have been keeping banking lawyers busy?
Marcelo Lamy Rego: Basically, restructurings and M&A work. In the last two or three months of last year and in the first five or six of this year, most major banks in Brazil were involved in restructurings of debts of large Brazilian corporations and so were the banking lawyers. Last year and in the beginning of this year we also saw some M&A activity involving financial institutions. This year the activity is picking up and, besides restructuring and M&A work, some international and Brazilian groups are involved in creating new financial institutions in Brazil. Financial players that left the country in the past are looking into coming back and we are seeing new players entering the market. Next year is expected to be a record year for Brazil in terms of market activity.
Diana Wilson Patrick: There has undoubtedly been a fall-off in the volume of transactions over the past year, particularly in real estate financing in the domestic market. We have also noticed a decline in financing transactions in the Far East. Instead, there has been a noticeable shift towards the sale and purchase of assets in the Far East and we have seen a considerable increase in these types of transactions over the past year. Additionally, financing transactions arising in the telecommunications sector remain buoyant. Based on the current economic climate we had also expected to see a large volume of bank restructuring work this year but this has not been the case as many of our banking clients have sought internal workouts with their clients.
Carol Pennycook: In Canada, although transactions have dropped off, there are still new financing transactions, although generally of a smaller size, and some corporate renewals and refinancings. Banking lawyers are also seeing some debt restructurings, but not the volume that many expected to see. As well, the Canadian public-private infrastructure market has been quite robust. Many of these transactions involve bank financings, although the structure of bank financings for these types of transactions has changed dramatically in the past 18 months. Bank lenders are lending for shorter terms and transactions are usually done on a “club” basis rather than with one or two lead arrangers.
Who’s Who Legal: Delegates at September’s G20 summit in Pittsburgh agreed to increase regulation on global banks. How effective do you consider the new current of global banking reforms to have been so far? How will stricter regulation affect the practice of banking law?
Diana Wilson Patrick: It’s too early to tell in our marketplace how effective the banking reforms will be. However, from a regional point of view, stricter banking regulations will mean that there is more information sharing between regulators and more standardisation of requirements, which will assist the regulators in dealing with multi-jurisdictional financial groups.
Carol Pennycook: I agree with Diana that it is too early to tell what the impact of banking reforms will be. Canadian banks fared very well in the global financial crisis. The regulatory system in Canada was already strong and Canadian banks generally were already subject to strict capital adequacy requirements.
Marcelo Lamy Rego: Banking is a heavily regulated industry in most countries around the world. This is also the case in Brazil. One aspect that singles out Brazil from other countries is that our payment system and its rules were recently reviewed (some years before the recent financial crisis) and are state-of-the-art due to our experience in past years with high inflation and recurring loss of value of our national currency, which is no longer the case. This experience and the improvement of our payment system created a strong regulator. The Brazilian Central Bank has a deep knowledge of the market and a constant supervisory presence. This is an important factor in banking regulation. I believe that strict rules are necessary but enforcement is key to the success of any banking regulation. The general impression, in discussing the recent financial crisis, is that the banking laws, although not flawless, were not the main factor. The lack of stronger supervision and enforcement played a pivotal role. Due to the irreversible interconnection between economies, the need for constant communication between regulators of different countries is also important.
Who’s Who Legal: How will the banking landscape look once the effects of the current downturn have played out? Do you envisage a return to previous levels of activity and profitability, or will things have changed completely?
Marcelo Lamy Rego: Our impression is that the market is picking up and the levels of activity are already coming back to what they were before the recent financial crisis. 2010 is expected to be one of the best years in terms of work for lawyers in Brazil, especially banking lawyers.
Diana Wilson Patrick: Smaller financial institutions have been affected by the economic downturn while the “strong” financial institutions (ie, those with a more solid capital base) appear to be ‘keeping their heads above the water’. Offshore banks are continuing to establish a presence in our jurisdiction and there is no perceptible downturn in the activities of these institutions. In terms of the future outlook, I don’t envision a new wave of commercial banks coming into the jurisdiction in the near future and I do anticipate an eventual return to previous levels of profitability once the banks have worked through their non-performing loan portfolios.
Carol Pennycook: The Canadian market seems to be picking up slowly and I would expect a slow but steady return to previous levels of activity as the M&A market and business generally picks up. Interest rates continue to be very low and we are starting to see margins decreasing, which seems to indicate a higher level of activity.
Who’s Who Legal: In difficult times – when greater diversity is in demand – is it more advantageous to have the manoeuvrability of a small to mid-sized law firm or the collective strength of a large practice? Which type of firm is fairing best in your jurisdiction?
Carol Pennycook: Although I think that most large and mid-sized firms in Canada have felt the impact of a decline in activity, I don’t believe it particularly affected large firms more than mid or small sized firms or vice versa. I do think that it negatively affected those firms where most senior lawyers have a relatively narrow area of practice more than those firms, such as ours, where the majority of partners have a relatively diverse practice and are able to assist their clients in responding to the changing market place. There were a number of firms that downsized and many that looked to expand into areas that are currently more robust. I think there is a general view that previous levels of activity in law firms will return quite quickly.
Marcelo Lamy Rego: There is no absolute answer to this question, at least not for the Brazilian market. It depends on the firm and on the type of client. There were large firms that survived the financial crisis with few losses and others that had considerable ones. The same happened with small to mid-sized firms and also to boutique firms in Brazil. Specialisation in times of crisis can cut both ways. Our firm, for example, is a small to mid-sized firm and, in our case, our size worked in our favour during the recent financial crisis. Due to our size, all of our lawyers are generalists that have more than one expertise and that can easily navigate through various areas of the law. This is generally the case with students fresh out of law school, because of our law education and our codified law system. However, this may change over the years depending on the exposure of the young lawyer to work and their eagerness for early specialisation. We keep our first years interested in all areas of the law we practise and foster their interest for law in general. Clients know that we have the capability of handling different areas of the law with the same quality of work and that understanding was built as part of our ongoing relationship with our clients and not as a way to survive a financial crisis. This generally keeps our flow of work steady, even during the recent financial crisis.
Diana Wilson Patrick: The concept of “large” and “mid-sized” firms is relative, as what in some jurisdictions is regarded as small is regarded as mid-size or large in our jurisdiction. That being said, the larger firms in Barbados appear to have been fairing best over the past year. I am of the view that it is important to have diversity, which will result in manoeuvrability and the ability to cover the different strengths in the appropriate practice areas while still maintaining a certain degree of specialisation sufficient to deliver “large practice” service in key practice areas.