As we all know, banks are in the money business; they accept our deposits, invest them in a wide range of financial products (for example, by making loans) and make both themselves and us a profit in the process.
Every one of these banking activities is legally documented. For example, when you opened your bank account you will have signed a standard set of terms of conditions setting out both your and your bank’s rights and obligations. Of course, you will not have had the ability to negotiate any of the terms of this contract, although they will have been scrutinised by a banking lawyer beforehand.
In contrast, take the example of a large multinational corporation needing to access hundreds of millions of pounds in debt to carry out a major takeover. That corporation would need to approach one or more international investment or commercial banks to arrange and underwrite the debt and would need to grant (or ensure that its subsidiaries grant) guarantees and asset security in favour of the banks.
The commercial terms of the deal will be negotiated between the banks and the borrower, and it is the task of the banking lawyers to document what has been agreed between the parties and ensure documents work from a legal perspective.
The working culture
Banking lawyers often work on the most cutting-edge transactions in the City, which means fast-paced work and long hours, particularly as transactions near closing. It also means working with bankers, lawyers, accountants and other professionals around the world as most transactions contain a cross-border element.
Teamwork is essential to get the deal done. Often you will find that a partner deals with the most complex structuring issues and points of negotiation, a mid-level associate will take the lead on drafting the documentation and a junior associate or trainee will deal with ancillary documents. Each of these roles is crucial to get the deal over the line and even at the most junior level there will be considerable client contact.
What other practice areas do banking & finance lawyers work most closely with?
Of course, tax advice is crucial as to whether a transaction is commercially viable and in the current climate of banking reform regulatory lawyers must also be consulted. Depending on the transaction, lawyers in many fields will be encountered. For example, if financing is being arranged to fund a merger banking lawyers will work closely with their corporate colleagues, or if real estate is being granted by the borrower as security for the financing property lawyers will be involved.
What phrase is a banking & finance lawyer most likely to use and what does it mean?
‘Conditions Precedent’ are an essential element of any banking transaction. In short, before a bank transfers any money to the borrower it will have a list of conditions that will need to have been met before it is happy to do so. These may be either commercial or documentary in nature. Examples of the former include the most recent audited financial statements of the company or its business plan. Examples of the latter include security documents granting security to the bank over various assets of the borrowing company and its subsidiaries and board and/or shareholder resolutions from the borrowing company showing that it is authorised to enter into the transaction.
Junior banking lawyers are usually tasked with managing the process of ensuring all these documents are in agreed form for closing and therefore they play a key role in ensuring that a closing runs smoothly.
A banking lawyer needs to be analytical and have a keen eye for detail; banking transactions can be complicated and the legal drafting needs to be clear and concise. Not only does a banking lawyer need to do this in light of legal developments which may affect the structure of any deal, they must also at all times be commercially sensitive to both the position of the client and current financial climate. Effective communication skills are also essential to be able to negotiate the strongest position for the client. A successful banking lawyer needs to possess far broader skills than simply a technical knowledge of the law.
The current Eurozone crisis is not only having a widespread impact on investor confidence, and therefore the number of new deals in the market, but also poses issues with regards to existing debt facilities – if the Euro disappears, either from one jurisdiction or in its entirety, what will happen to existing Euro denominated commitments and outstanding loans? Close attention is being paid by banking lawyers as to how “Euro” is defined in finance documents.
Another development is the tighter regulation facing banks and in particular, the increased regulatory capital which they must set aside before they can lend money. The result is that large syndicated loans are being arranged by a club of banks, rather than one or two banks, and borrowers also having to look at different sources for their borrowing requirements, such as the high yield bond market.
Emma Foster is an associate at White & Case LLP