Freshfields on brink of losing trophy client Royal Bank of Scotland

Freshfields Bruckhaus Deringer has fallen out with and may lose key client Royal Bank of Scotland (RBS). In the last few months, the bank has had discussions with other magic circle firms with a view to replacing Freshfields as board level adviser.

Two weeks ago the bank also set in motion what senior legal adviser Gail Russell described as "a complete review of the legal function", which will affect all panel firms. She told The Lawyer it will be "far more wide-ranging" than the panel review held just 18 months ago.

Freshfields' board-level relationship with RBS had been rock solid since the magic circle firm helped the bank secure its reverse takeover of rival NatWest Bank in 2001.

However, it is understood that the firm's relationship with chief executive Fred Goodwin is now less healthy, possibly as a result of disaffection over the Competition Commission's investigation into business banking, on which Freshfields advised NatWest.

Linklaters is favourite to replace Freshfields, because historically the firm has strong links with the NatWest side of the bank, which it represented prior to the merger.

However, sources close to RBS said the bank is extremely tough on industry conflicts, which could be problematic. It is understood that the bank may ask its plc-level adviser to prioritise its interests over those of all other banking clients. Linklaters is a key adviser of Halifax Bank of Scotland, while the rest of the magic circle also has conflicts.

Panel firm sources said they fear fees and firms will be cut as part of the wholesale review. So far, panel firms have been asked to log basic details onto an RBS secured website. The process will start officially in mid-June, but has been criticised as bureaucratic. One magic circle source said: "It would be more efficient for them [RBS] to employ 30 scribes all writing in copperplate."

Freshfields and Linklaters refused to comment.