Lawyers despair as RBS demands uniform billing
21 July 2003
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30 January 2012
Apparently the London headquarters of the Royal Bank of Scotland (RBS) strictly enforces a Zen-like bare desk policy for its staff. Everyone is expected to leave surfaces totally clear when they go home at night.
But RBS's minimalist aesthetic isn't limited to its own employees. Lawyers of all hues, be they corporate or finance, City or nationally-based, are all discovering that less is definitely more when it comes to hourly rates and the bank's panel review.
"So what?" you might ask. "Another day, another panel review designed to hammer down costs, and another dollar less for the lawyers."
But this is a review with a difference. In a move that can be measured on the spectrum of 'pretty unusual' to 'absolutely unprecedented', RBS will have just one fee rate for own account
work (where the bank itself pays the legal bill) as well as for deals where the lawyer's bill is passed to the client.
For example, if RBS is working for a borrower, it will be that company which ends up shelling out on legal costs, not the bank.
Traditionally this has been a bit of a winner for the banks, since law firms are more likely to charge a smaller rate for the bank's own account work. The pay-off for the panel law firms is that they can charge much heftier fees on those deals where the bank's client foots the bill.
But RBS's 'one fee fits all' policy will do away with this.
One view of why it has gone for this policy is that, with the economy still struggling, RBS needs to keep attracting business, ie borrowers, who in this market simply don't want to fork out hideous amounts of money to lawyers.
RBS's solution to this, though, seems slightly Calvinistic compared with those of its competitors.
Of the UK's largest retail banks, Barclays is probably the most sophisticated when it comes to a panel system. Lawyers say that in its recent review, it allowed a much broader scope for a differential between its own account and client-funded work on finance-based work.
RBS is clearly trying to play catch-up with Barclays, but its current labyrinthine procurement process, spearheaded by global procurement group FreeMarkets, is having quite an unnerving effect on lawyers, and specif
ically those in finance.
In fact, they are quaking in their boots about the RBS review and all are feeling the heat - from the top end at Allen & Overy and Clifford Chance to DLA in the mid-market, through to Addleshaw Goddard.
For firms that need volume vanilla finance work at decent rates (and that's just about everyone with a strong finance practice), it would be very bad news if RBS was to set such a precedent for retail banks.
Of course, there are panel reviews and panel reviews. When Dresdner Kleinwort Wasserstein reviewed its panel last year (The Lawyer, 23 September), it forced even Slaughter and May down to a specific hourly billing rate - anathema for the magic circle firm, which prides itself on single-figure billing.
However, law firms say that, after a month, the bank forgot it had ever done a panel review and went back to using the same old firms with the same old billing structures. Lawyers will no doubt pray that RBS will suffer from a similar bout of post-review amnesia.
What is equally surprising is that RBS's panel review has also eschewed bulk discounting, which for own account work has long been the cornerstone of panel reviews at financial institutions and, indeed, at all corporates.
Last year, Credit Suisse First Boston (CSFB) went that route, tying law firms down to favourable, bulk discounted rates for own account work.
The fingerprints of the banks' procurement people were all over it: one lawyer describes how law firms based outside the US were asked to use the New York subway to get to meetings with CSFB.
However, CSFB's procurement team was very successful in hammering down fees, because it had a big stick to beat law firms with.
Complying with its bulk discount conditions gave law firms access to CSFB's lucrative international panel, which supposedly dictates who the bank appoints in transactions where the fees are passed on to the clients. A global downturn has since taken the shine off this, but that's another story.
It is difficult to see why RBS has not gone down the bulk discount route. The only convincing theory being proffered is that it can be unethical. The worry is that a law firm not best suited to the job might get the work simply because it is cheap, when in fact it might not be right for the bank's client.
Money is sloshing around RBS at the moment, with very few borrowers taking it up. It's easy to see why prospective borrowers would be attracted to cheaper legal fees if RBS can crunch them out of the law firms.
Conversely, the law firms feel aggrieved that RBS is trying to cut a key revenue stream that has been a steady money-earner for years.
In reality, though, law firms are increasingly exposed to the vicissitude of the global economy. The truth is that RBS, its borrowers and the bank's law firms are all in it together - its just the lawyers' turn to take the pain.
Lots 2a-2c (£10m-£100m deals) Target number of firms: 25 Estimated annual legal spend: £22m Lot 2d (£100m plus deals) Target number of firms: 10 Estimated annual legal spend: £95m