Banking and Finance
2 January 2008
Whats it all about?
Almost everyone will, at some stage, borrow money and this is essentially what banking and finance involves. While individuals may require a loan to buy a house or a car, companies often require more versatile and complex loans for far greater amounts of money. This can involve a large number of parties and a great deal of documentation. It is the task of the banking lawyer acting for either the borrower or the lender to prepare these documents and ensure their partys interests are fairly reflected in them.
Banking law covers a wide variety of topics and lawyers tend to specialise in a particular area. Popular areas include asset finance (providing money so that assets such as aeroplanes and ships can be bought); acquisition finance (lending money to buy out other companies); Islamic finance (providing money that is in accordance with Shariah law principles); and project finance (borrowing money for power, infrastructure and oil and gas projects).
The working culture
With such a large amount of documentation, it will not come as a shock that banking lawyers work some very long hours. Many of the deals worked on involve multi-jurisdictional aspects and there is often a good possibility of international travel.
A banking lawyers level of seniority will determine the type of work they get on any specific transaction. A senior lawyer will be in charge of drafting the main agreements and will be involved heavily in negotiations with the other side. Such a person will be in control of the day-to-day running of the transaction. The more junior lawyers and trainees act as support to the senior lawyer and will be in charge of drafting ancillary documents. Most banking transactions involve obtaining conditions precedent (conditions that must be met before any money can be lent) and it will be up to the junior lawyers and trainees to ensure all these conditions have been satisfied.
Finance documents can be complicated, technical and full of jargon which needs to be fully understood. To ensure your clients needs are reflected correctly, a high level of knowledge in your specific area of banking law is a prerequisite. In negotiating documents a lawyer must have a good grasp of the structure of the transaction. It is also important to have knowledge of the markets as any changes in them will need to be reflected in the documentation. Often the drafting and negotiation takes place on a very small timescale with clients keen to see results as soon as possible, so there is a great deal of pressure surrounding transactions. Both qualified lawyers and trainees are expected to produce high-quality work under such pressure at any time of the day or night. Banking lawyers are also expected to have good people skills as there is often a great deal of interaction with clients both on the phone and in person.
Traditionally it has been banks that have provided loans to companies. A bank would often take on the cost of a loan and then sell parts of it on to a group of additional banks (known as a syndicate) so as to offset the risk. However, it is becoming increasingly frequent to see funds investing in loans. These funds raise cash from investors such as pension funds and re-invest by buying interests in loans which have been arranged by banks.
As such there is now far greater liquidity in the market, which has led to terms moving in favour of borrowers as banks compete to lend money. This has been particularly true in the leverage finance market until the recent liquidity crunch. This has resulted in funds being more wary on investing in risky deals and the pendulum has begun to swing back in favour of the lenders. Mark Fine, trainee, Norton Rose