Legal Business

Banks could face backlash on legal panel reviews

With the latest round of bank panel reviews in full swing, early indications show signs of a backlash from law firms as banks place increasing demands on panel candidates at the same time as driving down costs.

In October, The Royal Bank of Scotland (RBS) announced the results of its long-running panel review. By reducing its number of sub-panels from 13 to five, it has significantly lowered the number of law firms on the panel from around 100 previously to between 55 and 60 now. Meanwhile, former panel firms Slaughter and May, Olswang and Mayer Brown didn’t pitch to join the panel this time around.

A spokesperson for Slaughter and May said: ‘We left the RBS panel on amicable terms some 18 months or so ago and have not reapplied since then.’

A source at Mayer Brown told LB: ‘The decision not to re-tender for the UK legal panel at RBS was not one that was taken lightly. We believe that the quality of our legal work and the service we deliver has to be maintained to the very highest level and in this instance we felt it made good business sense to focus our efforts elsewhere.’ Mayer Brown did win a place on HSBC’s new general advisory panel following a review this summer.

‘Being on a bank panel is the starting point for winning work from banks.’
James Bresslaw,
Simmons & Simmons

However, Richard East, co-managing partner of the London office of Quinn Emanuel Urquhart & Sullivan, which regularly acts against banks in litigation, said that a progressive squeeze on fees is putting an increasing number of firms off applying to be on bank panels. ‘Firms are less likely to want to live with the restrictions and value-add that panel relations require,’ he said. ‘If they don’t believe that they are going to get a significant flow of revenue they might conclude that they don’t need the restrictions of the panel relationship.’

Others believe that banks have maintained such large rosters of firms on their panels to conflict any credible firm out of acting against them in litigation. For example Dechert, a firm with both banking and hedge fund clients, would be unable to act against a bank in a dispute for that reason.

‘If the hedge funds wanted to litigate against a bank, we would almost certainly have a conflict, because somewhere else in Dechert we would be acting for that bank and therefore we wouldn’t be able to act,’ said Richard Frase, a financial services partner at the firm.

James Bresslaw, who heads the banking team in London at Simmons & Simmons, said his firm was also aware of potential conflicts but felt that the firm’s reputation for acting for financial institutions would make any potential conflict unlikely.

‘Conflicts may occasionally arise in relation to individual matters, but generally this is not an issue as our clients know that our expertise comes from our strong financial institution client base and numerous panel appointments,’ he said.

Bresslaw added that there is still a great appetite for winning a place on bank panels. ‘Being on a bank panel is the starting point for winning work from banks,’ he said. ‘It opens up doors and gives us the chance to demonstrate our expertise and experience. More importantly, it gives us the opportunity to build relationships and learn more about our clients’ businesses.’

Lloyds Banking Group’s ‘pass-through’ panel review, the results of which are due to be announced in January, has also reportedly included some hefty demands from the bank. This included asking firms whether the work will be handled from one office or, if not, how firms will shift their costs to ensure the bank doesn’t incur any additional expense. It will be interesting to see if the trend continues when Barclays goes through its panel review in 2013.

This drive to keep costs down has been noticed by firms as well. ‘In the good times bank GCs would be happy for junior lawyers to clock up loads of hours, now they’ve tightened it up. There’s more fixed-fee stuff going round as well,’ said one legal recruitment specialist.

Banks have been traditionally known for their large panels but according to one legal consultant, their size is due to organic growth. ‘Over decades an enormous amount of firms have been used and built up relationships,’ he said. ‘When a downturn occurs, a banking GC may look at the panel of firms and wonder why some firms are on it. GCs are being dragged before the head of procurement and asked “what’s this list? This is crazy, please explain why you have this? Can you go and reorganise this in a more efficient way?”’

With the drive to push costs down, Bresslaw said the pressure was on all clients to rationalise right now, not just banks. ‘Financial constraints and pressure to keep costs down is an issue with all clients, not just banks,’ he said.

‘There is profitable work to be had, but clients quite rightly expect us to work more efficiently and innovatively for that work,’ he continued.

One managing partner of a firm on RBS’s panel said that although the rates might be low for certain types of work, it is important to be on the panel for the ‘spectrum’ of work that the bank provides. But he added that there was a fundamental problem with fixed-fee arrangements as unforeseen issues often arise further down the line and re-negotiations with the GCs on price can become quite difficult if a fixed fee has been agreed.

Another legal consultant even questioned the need for banks to use external law firms, arguing that the in-house legal teams of major banks were practically law firms anyway. ‘These are very sophisticated legal teams who are looking for people who can do things that they can’t do,’ he said.

He added that although cost is becoming a factor, no sophisticated business is going to appoint advisers purely on price. ‘Price is a factor, it has to be. But they are dealing with complex things and you can’t just have a race to the bottom,’ he said.