17 October 2011 | By Dale McEwan
New work streams are emerging alongside regulatory work in Norway, Denmark and Sweden as the countries’ finance sectors face tighter controls.
As the global financial crisis affects the volume of transactions across Europe, lawyers in Scandinavia are by no means twiddling their thumbs. New areas of work are starting to emerge alongside fields that at one time were relatively quiet, but which have now picked up.
Denmark in particular has been hit hard by the financial crisis. Kromann Reumert lawyer Jakob Hans Johansen explains that Danish financial stability regulation has recently been amended to provide stronger banks with a dowry from the state in the event of a takeover of a weaker bank.
“There’s a hope that these measures will make consolidation less painful for all involved,” says Johansen.
He adds that the country’s state-owned financial stability company, Finansiel Stabilitet, may provide financial support if a healthy bank is willing to take over all the assets and liabilities of a distressed bank other than share and subordinated capital, if such support is deemed necessary for the parties to enter into the transaction.
Finansiel Stabilitet can wind up the unhealthy part of a distressed bank with no loss to unsubordinated creditors if a healthy bank is willing to take over the healthy part of the weaker bank, including assets and liabilities as well as all relationships with customers.
Until the end of 2013 banks may apply for an individual state guarantee in connection with a merger or other consolidation. Finansiel Stabilitet enters into the guarantee agreement and administers the guarantees on behalf of the state
“Whether this will kick-start a consolidation process remains to be seen,” says Rønne & Lundgren partner Steen Puch Holm-Larsen. “In the long run consolidation will take place. Currently there are too many banks in Denmark for its size. In the next five to eight years the number will decrease significantly.
“That said, it’s doubtful whether the new bank package will do the trick. Until now the healthy banks have chosen to buy the healthy parts of distressed banks instead of buying the whole bank. The introduction of compensation for taking the whole bank will give some incentives to the acquiring banks for taking over failed banks.
“However, I doubt whether this will lead to significant changes. One should thus keep in mind that a lot of customers in bad banks are unattractive customers not only in the short run, but also in the long run. A number of the borrowers in the real estate sector as well as the agricultural sector will not recover for the next five to 10 years, and even if they do they will not be attractive costumers.”
Holm-Larsen believes the state guarantee in connection with the refinancing of existing indebtedness is more likely to kick-start a consolidation process.
“The option to prolong existing state guarantees will also be attractive to some banks,” he insists. “However, I doubt that this will lead to many mergers between healthy and distressed banks. It’s more likely to lead to mergers between distressed banks.”
Earlier this year small Danish bank Fjordbank Mors requested a takeover by government administrators.
“That’s an example of where the dowry would have helped,” muses Horten banking and finance partner Claus Bennetsen.
“I think we’ll see consolidation,” states Thomas Frøbert, a partner at Danish firm Philip. “We’ll see the major banks acquiring several of the smaller ones.”
In other developments, Frøbert says law firms are now competing harder with auditors with regard to offering tax planning advice.
“We’re getting more instructions from clients for tax advice - you can see the top four firms’ tax departments have increased in terms of both revenue and partner numbers,” he points out. “Lawyers are becoming aware that they can compete in this area. It’s a profitable area to be competing in. The M&A guys are capable of offering this tax advice and we’re seeing more cross-border transaction work with this tax development.”
Hannes Snellman Copenhagen managing partner Philip Risbjørn reports that the Danish M&A market started to recover in the third quarter of 2009 and was providing a healthy amount of work until the second quarter of this year. Since then activity has slowed.
“The trend in the M&A market is that corporates with cash on the balance sheet now have the upper hand over private equity funds in making attractive offers for Danish targets,” explains Risbjørn.
He adds that the two largest M&A transactions in Denmark to date this year are reflective of this trend - US chemical company DuPont’s takeover of Danish bio-based company Danisco and Airbus’s acquisition of Danish aircraft parts supplier Satair.
Horten M&A partner Lise Lotte Hjerrild says that, while the country has suffered a decline in the volume of transactions, activity continues to be high in the energy field, particularly renewables.
She adds that Germany’s decision to phase out nuclear power plants within 11 years will have a significant impact on Denmark as a renewable energy exporter.
Hjerrild adds that she is also witnessing an increase in succession matters.
“In this country there’s an enormous number of small and medium-sized companies that are family-owned,” she says. “In that sense we’re a bit of an unusual market compared with Sweden. In two-thirds of these companies the son or daughter doesn’t want to take over the business, so somehow they have to sell it to the employees or other parties. For a while nothing happened, but now the clock’s ticking.”
In Norway Kluge partner Atle Degré says more law firms are undertaking and assisting in internal investigations covering both the public and private sectors, although predominantly the former. Degré explains that his firm collaborates with experts in the fields of IT and accountancy to cover topics such as corruption, insider trading and employee abuse.
Degré adds that public procurement is another growth area for Norwegian firms.
“This is a relatively newly developed legal area, partly from EU directives and as a consequence of more stringent rules on public services.”
Norway continues to weather the financial crisis relatively well due to its strong oil-based economy. The discovery of a new oil source in the North Sea in the summer is guaranteed to provide work for years to come.
Touted as the third-largest North Sea find in three decades, the Avaldsnes/Aldous Major South find is believed to hold between 1.2 billion and 2.6 billion barrels of recoverable oil. Norway is the world’s eighth-largest oil exporter.
“There’s a lot happening in the oil sector,” says Wikborg Rein managing partner Susanne Munch Thore. “This will spur additional activity.”
Earlier this year Norwegian oil and gas company Statoil decided to sell its 24.1 per cent stake in Gassled, an owner and operator of gas transportation pipelines, for NOK17.35bn (£2bn). Thommessen acted for Statoil.
Maria-Pia Hope, a partner at Swedish firm Vinge, says firms are noticing the increased propensity of the Swedish Financial Supervisory Authority (FSA) to take forceful action against failing regulated entities.
“We’ve seen, ever since the start of the financial crisis in 2008, a lot more focus from the regulator on monitoring the financial sector,” Hope relates. “We’ve been lucky in a sense that we haven’t had any huge bank crashes. We’ve had a couple, but in relation to those we’ve been interested to see that the FSA has used what are the more far-reaching of its possible sanctions. There was certainly surprise in some corners of the market that the FSA went as far as to pull a licence when there were other sanctions available.”
Hope points to the sanctions taken against the directors of HQ Bank, which is being liquidated after having its banking licence revoked in 2010, as an example of FSA action. Individual members of the board of directors have been banned from sitting as board members of other regulated entities.
“What that’s brought about is a lot of focus on the compliance departments of regulated entities,” says Hope. “They’ve realised they have to sit up and listen and really think about compliance and how to relate to the FSA.”
She adds that firms are seeing a lot more demand for regulatory work stemming from increased regulations and a stronger need for a second opinion on compliance issues.
“That’s been an interesting development,” says Hope. “We’ve spent a lot of time thinking about what our clients need in terms of regulatory expertise. We’ve always had a strong regulatory function in the firm within the banking and finance department. That function has now become even larger. It’s now active in trying to keep abreast of developments and trying to act in the discussions you find in an environment where there are a lot of regulations coming out.”
Law firms across Scandinavia are expecting that this type of work will continue to keep them busy in the coming months as the region’s governments take tighter control of their financial sectors.