Throughout the year 2000 the headline banking deals just kept coming. They ranged from the Royal Bank of Scotland’s successful £21bn hostile bid for NatWest and Barclays’ £5.4bn takeover of the Woolwich to Chase Manhattan’s £24bn agreed takeover of JP Morgan and its £4.8bn acquisition of one of the last independent UK investment banks, Robert Fleming.
Talks between Abbey National and Bank of Scotland about a multi-billion pound merger may have collapsed last month, but Lloyds TSB is still stalking Abbey National and market commentators still expect the wave of consolidation and restructurings in the banking sector that took place in the past 12 months to carry on.
These shake-ups have had a major impact on some of the largest in-house legal teams in the UK. When RBS merged with NatWest, for example, 27 out of 160 lawyers’ jobs were lost. The future shape of ING Barings’ legal team is also unclear following the decision to sell its US investment banking arm and merge the rest of its operations into its European arm.
With bank executives under tremendous pressure to realise the benefits of deals or new business structures, in-house legal teams are increasingly being called on to play their part in delivering the cost-savings and economies of scale and to work more productively.
“The lawyers and the compliance people are, if anything, the groups that come together and merge quickly and well,” says Laurie Adams, global head of legal for wholesale banking and compliance at ABN Amro.
Before taking up his current post, Adams was regional counsel at Citibank, where he oversaw the combining of the legal teams following the bank’s mergers with Salomon Smith Barney in 1998 and then the investment banking arm of Schroders in January 2000. “The legal and compliance departments are relatively smaller teams, made up of professionals, and a merger creates a lot of work,” Adams says. “Most people hopefully recognise that the merger will create a stronger business and just get on with it.”
Having moved to ABN Amro in September this year, Adams and his new colleagues in the Amsterdam head office have been working on bedding down the realignment of the Dutch bank’s legal team, which has more than 120 people in the legal team and 160 on the compliance side. “Because the bank is moving from a country-based structure to a global client and product basis, we are looking to make sure that lawyers and the compliance people really are supporting the businesses,” Adams says.
This has involved a significant amount of behind-the-scenes restructuring so that the legal team – now structured along the five product lines of equities holdings, equity derivatives, global derivatives, fixed income and commercial banking – delivers results.
It has been a similar story of restructuring at Barclays. When the bank’s new chief executive officer Matt Barrett announced early last year that he wanted to deliver £1bn in cost-savings over four years through the introduction of a new value-based management structure, Barclays’ legal team, led by group general counsel Howard Trust, launched a root and branch review with the aim of providing a more efficient service and a cut in the overall legal spend.
From having four standalone business groupings – retail banking, corporate banking, investment banking and fund management – each with their own resources, including a legal team, the bank has moved its focus to approximately 25 individual business units. Under the new structure, the intention is that these units should share their infrastructure, including the legal resource.
The solution, developed by Trust and his project team, was not to create a centralised legal function, but to construct a new model involving three key elements. First, they have introduced the concept of business partners, lawyers responsible for each of the units. Second, each of these partners will have a team of lawyers to support the unit. Third, there are four specialist legal teams covering areas of general relevance, such as corporate/commercial and litigation. To add to this, there are global practice groups, allowing the lawyers to share information and expertise, and four regional counsel to cover Europe, North and South America, Asia and Africa.
Writing in the last issue of Legal Director, the bank’s project and operations director Des O’Connell said the new model would take time to bed down. “But,” he added, “there is a strong feeling among the senior lawyers that the model will improve performance and we are already seeing a greater level of team-working and co-operation between lawyers across the group.”
As well as reorganising the way they work, many legal teams have instigated wide-ranging panel reviews in a bid to use their buying power and extract further value from their multi-million pound spend. Among those known to be either carrying out or to have carried out a panel review are Citibank, ABN Amro, Barclays and National Australia Bank, the owners of the Yorkshire Bank and Scotland’s number three, Clydesdale Bank.
National Australia’s review, which also covers its operations in Northern Ireland and Ireland, is being led by its European general counsel, Jane Shirran, who says that it was the right time for the bank “to leverage off the fact that we are such a big group a bit more”.
While Shirran admits that costs are a “big factor” in the review, with the bank looking for discounts from its chosen firms, she is keen to stress that firms’ ability to show that they can work efficiently alongside the bank is just as important.
With the bank planning to merge the Yorkshire Bank with Clydesdale Bank and its chief executive building up a war chest for organic growth in the UK, the need to introduce a consistent approach was also self-evident.
Until now, the set-up for the use of legal services varied hugely between the group. Yorkshire Bank, for example, has long been closely associated with Addleshaw Booth & Co, to the extent that the law firm acted almost like the bank’s in-house team.
Arrangements for the Clydesdale, meanwhile, could not have been more different. “I am not sure you could call it a panel,” Shirran says. “The bank was using literally hundreds of lawyers.” This was partly because, historically, the bank would give work to firms which used its banking services.
Under the review being carried out, this will all change. Shirran has already appointed a lawyer to an in-house role at the Yorkshire Bank. The bank will also effectively be made less reliant on Addleshaws, although the national firm could in theory benefit from handling work for the merged group as a whole.
The National Australia legal team has now completed its preliminary review and last month sent out letters inviting the successful firms to go to the next stage and informing the others that they were not being asked to go further.
Already there has been a significant cut of firms from the original list. Although Shirran will not put an exact figure on the number or name to those who have missed out, she does reveal that more than two-thirds have been dropped. Despite the swingeing cuts, Shirran says the firms have been fairly accepting about the need for the review. “It is the way things are going,” she says. “The medium-sized and bigger firms are very used to it now.”
A number of firms were also happy to simply carry on handling work that was not part of the tender, such as residential mortgage work and certain commercial security work at the lower end.
The firms chosen to proceed to the next stage, which include practices that none of the group’s companies has used before, must now respond to a detailed tender document with a return date of the end of March. Once the firms have responded to the tender document, a decision will be made on whether the bank will hold a beauty parade or not.
The group’s main advisers have historically been CMS Cameron McKenna, Addleshaw Booth & Co and Dundas & Wilson, with which they have very strong relationships. “I would expect them to survive the tender process,” Shirran says, “but we are putting everyone on a level playing field”.
Reviews such as the one the National Australia Bank is carrying out will continue to be a significant feature of the sector while the competitive pressures on banks remain so great.
As ABN Amro’s Adams, who has just launched a review at the Dutch bank, says: “It is sensible on a periodic basis to stimulate competition – you need to ensure you are extracting value.”
With the added ingredient of increasing charge-out rates to add to these internal pressures, banking in-house legal teams are learning to flex their muscles.
Banking consolidation in 2000
BidderTargetAmount
BarclaysWoolwich£5.4bn
Credit Suisse First BostonDonaldson Lufkin & Jenrette£7.5bn
Chase ManhattanRobert Fleming£4.8bn
Chase ManhattanJP Morgan£24bn
CitibankSchroders investment banking arm £1.35bn
Dresdner Kleinwort BensonWasserstein Perella£980m
HSBCCredit Commercial de France£6.8bn
Royal Bank of ScotlandNatWest£21bn
UBS WarburgPaineWebber£7.4bn
