A report released in April said confidence was returning to the global markets – a good thing for banking and finance lawyers in Australia you would imagine. But have the predictions of the report come to pass? And how has the entry of global firms affected the market for banking and finance lawyers here? Andrew Jennings reports.

In late April, Ernst & Young (EY) released a report that stated confidence was steadily returning to the global markets, which, it believed, could only be a good thing for banking and finance lawyers in Australia.

“It’s all about confidence,” Graeme Browning, EY’s Oceania managing partner, transaction advisory services, said at the time about the EY Capital Confidence Barometer Report.

The report surveyed 1500 executives from companies in 57 countries, including 146 respondents from Australasia, and painted a positive picture of the improving global economic outlook.

“In regard to M&A activity,” said Browning, “I guess you can say we’re cautiously optimistic.”

The report showed that confidence and optimism remained stable across a range of indicators, including economic growth, employment, corporate earnings, credit availability and market stability.

It even boasted that Australian companies enjoyed strong balance sheets and were well positioned for growth.

“Early movers and strategic buyers may have a window to gain a competitive advantage. If confidence continues to grow, M&A activity will follow and pent-up demand for growth will likely see a rush for assets. The second half of 2012 could be a busy time for transactions,” Browning claimed.

Busts lead to boom

So, over a month on, has this renewed economic confidence translated into a flurry of new business on the ground for banking and finance (B&F) lawyers?

“We’re seeing surprisingly high activity in the acquisition and project finance space right now,” says Patrick St John, project finance partner at Freehills.

“In Australia, bank loans tend to be for shorter periods of time compared to places like the UK, so businesses have to refinance more often here. We’re seeing quite a volume of work in relation to refinancing existing facilities, as opposed to ‘new money’ deals for new projects.”

Business seems to be booming for insolvency and restructuring lawyers, with new figures showing corporate insolvencies at historically high levels.

According to statistics released late last month by the Australian Securities and Investments Commission (ASIC), the number of failed businesses exceeded 2500 for the third consecutive quarter during the first three months of this year.

The figures showed that the number of external administration (EXAD) appointments in the first quarter of the year increased by 16.7 per cent compared with the same period last year.

Companies entering EXAD rose from 2598 in the December 2011 quarter to 2655 during the March quarter. On a monthly basis, there was a significant increase from 518 in January to 1123 in February, and then a minor fall off to 1014 in March

“In terms of raw numbers insolvencies continue to increase, yet the size of the jobs we are seeing, in terms of debt, are not as large as a few years ago,” says Jason Opperman, the head of Henry Davis York’s (HDY) banking, restructuring and insolvency group.

According to ASIC, Queensland showed the most significant spike in external administrations during the March quarter, compared to the same period in 2011, with an increase of 54.2 per cent from 404 to 623. However, New South Wales finished top of the pile with 1042 external administrations, followed by Victoria on 658.

“What we’re seeing is a shift away from the type of insolvencies that came in the first wave post-GFC three or four years ago, which were focused on the large and often complex high-leveraged businesses. What we’re seeing now is more the middle-market slowdown and administrations,” Opperman adds.

Freehills says its insolvency and restructuring work “is definitely up” right now, but adds that it remains only around 10 per cent of the practice business, while Clifford Chance believes the insolvency market is quieter than during the 2008 to 2010 period, when there was a number of big corporate collapses.

“A lot of the big capital stuff is gone,” says Scott Bache, finance partner at Clifford Chance. “There is medium-cap insolvency work on a regular basis, but we’re not seeing a massive up-tick at the moment.”

The Australian arm of UK firm Clifford Chance, which last month marked its one-year birthday in the Australian market, says it’s still testing the waters with its B&F practice.

“We’re still at the start-up phase but, because of the way we’ve positioned ourselves in the market, we’re pretty busy, especially doing work outside of Australia,” says Bache.

“Because we don’t rely on the sort of, for want of a better word, ‘vanilla’ type work the other big firms do we don’t think we experienced the downturn as much.”

Panel beaters

The arrival of international firms such as Clifford Chance has provided a shot across the bows for the heavy-hitters in the B&F sphere, who have traditionally had most of the business for the big four banks in Australia all sewn up.

Newkids on the blocklike Clifford Chance and Allen & Overy may not yet have the artillery to compete with Australia’s major B&F players - and threaten their places on the panels of the big four banks - but their deftness on the international stage is likely to nab more clients.

“We don’t want to be another number on a panel,” says Bache.

“The Australian banks are very dominant in the market and are very well serviced by plenty of good firms. What we’re trying to do is play to our strengths and the clients we already have. In terms of domestic work, we’re more likely to be on the borrower side than on the bank side.

“We’re targeting where we have a technology advantage. Take something like bank regulations … we can look at it through a global perspective. There’s nobody else in the market that can talk to banks about what’s going on in Europe and how it will affect them.”

Bache says Clifford Chance’s strategy on the domestic front is focused on looking at under-represented areas of the market and where it has a competitive edge due its global reach.

A game of unequals

Freehills, which can boast a place on the panels of all four big banks, believes that the new international entrants have done little to alter the landscape of the B&F market.

“Yes, there have been new international entrants but there still has been very limited new blood into the market,” says St John.

“The main game on the ground here remains the big banks. They have existing panels where strong relationships have been built. We have 20-odd partners and 100 lawyers doing banking work.

“The mere fact Clifford Chance has only a couple of partners in banking, I don’t think they’re competing head-to-head with us … we’re really a juggernaut compared to them,” added St John.

Clifford Chance celebrated its one-year anniversary in Australia last month by boosting its Perth practice. Finance counsel Philip Sealey recently moved from the firm’s London office to work out of the west coast.


Partick St John, partner, Freehills

He believes the firm’s cross-border capability could prove beneficial in poaching clients.

“Our significant ability to service cross-border deals seamlessly and our international sources of capital going forward … I think this will become very interesting to our banking clients,” says Sealey.

“There is already recognition among certain of the big banks that we are probably the best in the market at doing that. There is now a willingness to look beyond the structures of their panel requirements.

“I’m confident they’ll seek to appoint us in more of their international-focused deals.”

Sealy added that in the mega-project space there is a need for huge amounts of international capital.

“There’s no point having these beautiful construction documents if you don’t have relationships with export credit agencies and with arrangers overseas. On balance, we’re confident we have a competitive edge in that department.”

Clifford Chance has also questioned the recently acquired global nature of many big Australian firms following recent mergers with international counterparts.

“Frankly, some Australian firms who have tied up with off-shore networks, most aren’t financially integrated, which makes a huge difference. They are populated with lawyers that don’t have cross-border skills,” says Bache.

In terms of regulation of the B&F market, Clifford Chance believes that what local regulators are currently working on is in response to what is happening offshore.

“To understand the drivers, and they are positioning Australia as a financial market, it’s mostly coming from what they’re seeing in other markets,” says Dale Rayner, counsel at Clifford Chance.

“Certainly what is likely to happen here is in response to overseas.

“In fact, one of the most recent examples is in relation to derivatives. The approach of the regulator here was to ‘just let the markets decide’, which in effect meant it was saying ‘we’ll let all the offshore developments govern what happens here’.”

The Asian influence

With Australia starting to feel minor tremors from the seemingly never-ending economic uncertainty in Europe, European banks that have been active here have now become less active, according to Freehills.

“It has created an opportunity for Asian banks - Japanese and Chinese in particular - to become more active. These banks are filling the space, with increasing work for banking and finance lawyers shifting toward them,” says St John.

“This work is typically in the high-end market, not in retail. We are seeing Asian banks based here participating in big syndicated loans and big project loans recently.

“We’re certainly working with them more now.”

According to statistics released late last month by the Australian Securities and Investments Commission (ASIC), the number of failed businesses exceeded 2500 for the third consecutive quarter during the first three months of this year.

The figures showed that the number of external administration (EXAD) appointments in the first quarter of the year increased by 16.7 per cent compared with the same period last year.

Companies entering EXAD rose from 2598 in the December 2011 quarter to 2655 during the March quarter. On a monthly basis, there was a significant increase from 518 in January to 1123 in February, and then a minor fall off to 1014 in March

“In terms of raw numbers insolvencies continue to increase, yet the size of the jobs we are seeing, in terms of debt, are not as large as a few years ago,” says Jason Opperman, the head of Henry Davis York’s (HDY) banking, restructuring and insolvency group.

According to ASIC, Queensland showed the most significant spike in external administrations during the March quarter, compared to the same period in 2011, with an increase of 54.2 per cent from 404 to 623. However, New South Wales finished top of the pile with 1042 external administrations, followed by Victoria on 658.

“What we’re seeing is a shift away from the type of insolvencies that came in the first wave post-GFC three or four years ago, which were focused on the large and often complex high-leveraged businesses. What we’re seeing now is more the middle-market slowdown and administrations,” Opperman adds.

Freehills says its insolvency and restructuring work “is definitely up” right now, but adds that it remains only around 10 per cent of the practice business, while Clifford Chance believes the insolvency market is quieter than during the 2008 to 2010 period, when there was a number of big corporate collapses.

“A lot of the big capital stuff is gone,” says Scott Bache, finance partner at Clifford Chance. “There is medium-cap insolvency work on a regular basis, but we’re not seeing a massive up-tick at the moment.”

The Australian arm of UK firm Clifford Chance, which last month marked its one-year birthday in the Australian market, says it’s still testing the waters with its B&F practice.

“We’re still at the start-up phase but, because of the way we’ve positioned ourselves in the market, we’re pretty busy, especially doing work outside of Australia,” says Bache.

“Because we don’t rely on the sort of, for want of a better word, ‘vanilla’ type work the other big firms do we don’t think we experienced the downturn as much.”

Panel beaters

The arrival of international firms such as Clifford Chance has provided a shot across the bows for the heavy-hitters in the B&F sphere, who have traditionally had most of the business for the big four banks in Australia all sewn up.

Newkids on the blocklike Clifford Chance and Allen & Overy may not yet have the artillery to compete with Australia’s major B&F players - and threaten their places on the panels of the big four banks - but their deftness on the international stage is likely to nab more clients.

  “We don’t want to be another number on a panel,” says Bache.

“The Australian banks are very dominant in the market and are very well serviced by plenty of good firms. What we’re trying to do is play to our strengths and the clients we already have. In terms of domestic work, we’re more likely to be on the borrower side than on the bank side.

“We’re targeting where we have a technology advantage. Take something like bank regulations … we can look at it through a global perspective. There’s nobody else in the market that can talk to banks about what’s going on in Europe and how it will affect them.”

Bache says Clifford Chance’s strategy on the domestic front is focused on looking at under-represented areas of the market and where it has a competitive edge due its global reach.

A game of unequals

Freehills, which can boast a place on the panels of all four big banks, believes that the new international entrants have done little to alter the landscape of the B&F market.

“Yes, there have been new international entrants but there still has been very limited new blood into the market,” says St John.

“The main game on the ground here remains the big banks. They have existing panels where strong relationships have been built. We have 20-odd partners and 100 lawyers doing banking work.

“The mere fact Clifford Chance has only a couple of partners in banking, I don’t think they’re competing head-to-head with us … we’re really a juggernaut compared to them,” added St John.

Clifford Chance celebrated its one-year anniversary in Australia last month by boosting its Perth practice. Finance counsel Philip Sealey recently moved from the firm’s London office to work out of the west coast.
         

Partick St John, partner, Freehills

He believes the firm’s cross-border capability could prove beneficial in poaching clients. 

“Our significant ability to service cross-border deals seamlessly and our international sources of capital going forward … I think this will become very interesting to our banking clients,” says Sealey.

“There is already recognition among certain of the big banks that we are probably the best in the market at doing that. There is now a willingness to look beyond the structures of their panel requirements.

“I’m confident they’ll seek to appoint us in more of their international-focused deals.”

Sealy added that in the mega-project space there is a need for huge amounts of international capital.

“There’s no point having these beautiful construction documents if you don’t have relationships with export credit agencies and with arrangers overseas. On balance, we’re confident we have a competitive edge in that department.”

Clifford Chance has also questioned the recently acquired global nature of many big Australian firms following recent mergers with international counterparts.

“Frankly, some Australian firms who have tied up with off-shore networks, most aren’t financially integrated, which makes a huge difference. They are populated with lawyers that don’t have cross-border skills,” says Bache.

In terms of regulation of the B&F market, Clifford Chance believes that what local regulators are currently working on is in response to what is happening offshore.

“To understand the drivers, and they are positioning Australia as a financial market, it’s mostly coming from what they’re seeing in other markets,” says Dale Rayner, counsel at Clifford Chance.

“Certainly what is likely to happen here is in response to overseas.

“In fact, one of the most recent examples is in relation to derivatives. The approach of the regulator here was to ‘just let the markets decide’, which in effect meant it was saying ‘we’ll let all the offshore developments govern what happens here’.”

The Asian influence

With Australia starting to feel minor tremors from the seemingly never-ending economic uncertainty in Europe, European banks that have been active here have now become less active, according to Freehills.

“It has created an opportunity for Asian banks - Japanese and Chinese in particular - to become more active. These banks are filling the space, with increasing work for banking and finance lawyers shifting toward them,” says St John.

“This work is typically in the high-end market, not in retail. We are seeing Asian banks based here participating in big syndicated loans and big project loans recently.

“We’re certainly working with them more now.”