Iberia Special Report: Spanish fliers

The recession may be starting to bite, but the leading Spanish and Portuguese law firms appear to know an opportunity when they see one. Meanwhile, in the banking sector, Banco Santander is continuing to set the pace for the industry.


Iberia Special Report: Spanish fliers The Spanish media may be full of despair about the country slipping into recession, but the leading law firms have not been left standing. Besides winning a large part of the restructuring work for the bigger companies in trouble, the major firms across both Spain and ­Portugal have been busy expanding their reach and streamlining their business ­models to face the future.

Garrigues recently reported year-end ­figures showing a 15 per cent increase in revenue to e296m (£264.64m), having also promoted 39 new partners. The firm ­continues to emphasise the importance of its strong regional base in helping to offset the market slowdown most evident in Barcelona and Madrid. It has also opened a second office in Tangiers, Morocco.

Iberia’s second-largest firm Cuatrecasas has announced that it will reduce the size of its management committee from 18 ­partners to eight, as well as reducing the ­current six core practice areas to four, in order to “gain in ­operational capability, strengthen synergies between the different teams and increase specialisation through the professional groups”.

Under this scheme, ­corporate becomes a standalone practice area, while ;tax joins up with a revamped finance group. Each area will be headed ;by ;two ­partners – something the 820-lawyer firm hopes will serve to reinforce its
day-to-day leadership, as well as bringing a new generation into the firm’s management.

Uría Menéndez, meanwhile, continues to keep an eye on international opportunities. It will open in Beijing together with best friend firms Slaughter and May and De Brauw Blackstone Westbroek. However, the team in Beijing will work not only for ­Iberian clients, but also for Chinese investors looking to expand in Latin ­America, utilising the firm’s offices there.

Last September Spain’s fourth-largest Iberian firm Gómez-Acebo & Pombo absorbed Barcelona-based employment law specialist Nieto Abogados. But the firm remains committed to launching its own office in Portugal in the New Year after abandoning its best friends relationship with Vieira de Almeida.

There are also signs that smaller ­national firms are seeking mergers in order to face the coming year with stronger financial bases. Two Madrid-headquartered firms, Ramón Hermosilla and Gutiérrez de la Rosa, have agreed to merge as of 1 January 2009. The combined team will boast 70 lawyers. Similarly, corporate and private equity specialist Dutilh Abogados has merged with niche employment law ­specialist Bufete Caldevilla to form a
30-lawyer team in Madrid.

In contrast to the activity among the national firms, the leading international firms appear to have opted for quiet retrenchment. Under pressure from their London headquarters, the magic circle firms are said by lawyers to have frozen recruitment, except at the junior level. Costs are under close scrutiny and there is talk of some searching for cheaper office accommodation – particularly that now available within Madrid’s four law firm towers.

“It seems possible that, given the differing responses to the current situation, we may yet see some of the Spanish legal ­heavyweights regain some of the ground lost to the international firms over the past few years,” says one Madrid law firm source.

Banks seek white knights

At a time when many Iberian banks are questioning how to increase their cash reserves, Banco Santander was first to take the initiative with a e7.2bn (£6.44bn) rights issue designed to boost its core capital ratio from 6.3 per cent to 7 per cent.

The bank had been quietly trying to achieve the same aim through asset ­disposals, including its financial services and insurance arms, as well as its 31 per cent holding in petroleum company Cepsa. But it also chose to commit cash resources to buy the UK’s Alliance & Leicester. More recently it made the opportunistic e465m (£415.73m) acquisition of the non-toxic assets of Bradford & Bingley, as well as seeking to gain full control of Sovereign Bancorp in the US for an outlay of $1.9bn (£1.27bn).

For the rights issue, Santander worked with Uría, Davis Polk & Wardwell in the US, Bonelli Erede Pappalardo in Italy, Pérez Alati in Argentina, Ritch Mueller in Mexico and Slaughters in the UK. Linklaters advised the underwriters.

Rival bank BBVA chose to reinforce its own liquidity position through a record e8.5bn (£7.6bn) residential mortgage-backed securitisation issue. This ­immediately followed a e5bn (£4.47bn) issue on which Cuatrecasas advised. BBVA is also seeking to dispose of its e2bn (£1.79bn) property portfolio on a sale-and-leaseback basis, using Clifford Chance for legal advice.

Other banks are reportedly assessing the market’s appetite for further issues, while also assessing the merits of utilising the Spanish government’s e100bn (£89.4bn) guarantee fund, designed to cover debt issues until the end of 2009. The government is also acquiring asset classes through its Financial Assets Acquisition Fund.

The initial uptake has been limited, say lawyers, as many banks and cajas are ­reluctant to admit they have a problem. Nevertheless, those close to the sector expect many to use the facility.

The Portuguese government has been forced to make similar arrangements to ­protect its banks. Up to e20bn (£17.88bn) has been made available, and BPI, BCP ­Millennium, Santander Totta and Banco Espírito Santo have all announced that they will use the guarantees to cover their immediate to medium-term financing operations.

However, the arrangements arrived too late for unlisted bank Banco Português de Negócios (BPN), which had accumulated e700m (£625.83m) in losses – due in part, say lawyers, to the nature of its operations in Cape Verde. State-owned Caixa Geral de Depósitos has taken over the day-to-day management of BPN and is already looking to sell off its Real Vida life insurance division and private investment bank Efisa.

Shareholders of Sociedade Lusa de ­Negócios, the former owner of BPN, are considering challenging the nationalisation on the grounds of unconstitutionality. Other private banks, including BPP, Finibanco and Finantia, are reportedly looking for white knights in a bid to avoid similar fates.

The global liquidity crisis may have left capital markets lawyers sidelined, but good collateral work is appearing, say some – much of it requiring instant action. The bigger banks, including BBVA, are expected to have to follow Santander’s recent move.

Managing partners, therefore, may not wish to reduce their teams in the event that they are suddenly called on to assist a ­financial institution in trouble.

Moray McLaren is managing editor of Iberian Lawyer