Banking & Finance Report 2015: Changing The Mix
The banking and finance sector is generally considered to evolve at a very slow pace, but could there be a revolution on the horizon?
The world of finance is beginning to change. Though there is a tendency to view the world of bankers and lenders as one of the most traditional and conservative of industries, it is being forced to adapt to a new environment that can be quite difficult to predict. Banks are now facing stiff competition from new providers of finance - indeed, this environment is so fiercely competitive that banks are seeing their profits decline. The traditional banks now face the challenge of players such as the so-called 'Fintech' companies - and it is important to point out that these new market entrants are not hampered by the same burden of regulation that the mainstream banks have to deal with. It is a time of great uncertainty for the financial sector in Iberia, particularly considering the collapse of Banco Espírito Santo in Portugal, which was, as lawyers point out, something that many never imagined would come to pass.
To set the scene, Spain's banking and finance sector has seen major changes made to the insolvency law in the last 12 months. "The introduction of the new cram-down mechanism into the Spanish insolvency law has provided an alternative for restructuring Spanish debt," says Linklaters' partner Ben Crosse. "This is giving clients an efficient process and they don't necessarily have to look outside of Spain for a solution." Meanwhile, there had been predictions that direct lending by funds would be a significant trend in the last year have not happened, according to Crosse. "The banks have liquidity and the need for direct lending hasn't materialised in the amounts expected some months ago."
Ángel Pérez López, partner at Uría Menéndez, says the leverage of "dissident lenders" has decreased considerably as a result of the recent amendments to Spanish insolvency law. "Most banks now understand that kicking the can down the road cannot be the solution when the levels of debt are unsustainable," he says. Pérez López adds that banks are now prepared to "take equity or use equity-like instruments, or even accept haircuts, when the business plan of the debtor clearly indicates they should be able to maximize their recoveries in the long-term". Pérez López adds that it has been a very good year for restructurings, while bond issuance has given Spanish companies a good opportunity to go to the international markets.
Francisco Uria, partner at KPMG Abogados, says the 'Banking Union' process - both the European Union's Single Supervisory Mechanism and the Single Resolution Mechanism - is a massive issue for the banking sector. He adds that banks in Spain will be benchmarked against other European banks and this - considering, for instance, the question of corporate governance review - could create opportunities for lawyers.
Competition hots up
César Herrero, partner at DLA Piper, says there has been a huge diversification in sources of funding that has led to an "increasingly competitive funding landscape". He adds: "The increase in liquidity has meant an increase in deal activity, though there have been lots of ups and downs, with regard to the level of activity." Rafael Aguilera, partner at Gómez-Acebo & Pombo, says a relevant issue in the last year has been the impact of regulation of SOCIMIs (Spanish real estate investment trusts), which has "implied a significant amount of work for the financing and capital market departments of law firms". Meanwhile, Andrés Lorrio, partner at Jones Day, says among the biggest challenges banks will face are of capital adequacy requirements and regulatory reforms.
One partner remarks restructuring was an "impressively profitable" line of work for law firms that paid "substantial fees". He adds that, in some cases, a restructuring could generate as much in legal fees as 10...
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