Fallout from the global financial crisis keeps lawyers in CEE busy. But the region’s complexity means the work is best handled by local and international firms working together

CEE - euro

The EU bailout of Greece is often cited as the pinnacle of national financial mismanagement. Less often spoken about is the situation in Central and Eastern Europe (CEE).

Slovenia, for example, found itself in a mess a little over four years ago. The small Adriatic state’s banks received a €4.8bn (£4.2bn) bailout and the country is feeling the shockwaves to this day.

Agreements reached between Slovenia and the European Commission meant that two of the nation’s largest banks – Abanka Vipa and Nova Ljubljanska Banka (NLB) – would be privatised.

For firms in the region, the rich vein of work this disruption provides shows no signs of slowing.

“In the past year, a big trend we’ve seen is the consolidation of the banking sector,” says Schoenherr managing partner Michael Lagler.

“In some countries, such as Austria, this process is more or less finalised, but in Croatia and Slovenia there’s still real consolidation and restructuring work stemming from the banking crisis. This is bringing with it a lot of work to straighten out non-performing loans [NPLs].”

Abanka, NLB and ex-Société Générale (SocGen) Croatian subsidiary Splitska Banka are indicative of a wider trend. Banks are retrenching and the work is there to be won. For a clutch of firms, local expertise is as important as the capacity of their larger, more well-known counterparts.

A bit of uniformity would be nice
CEE is a diverse region with a range of languages, cultures and legal systems. It is an exciting place to work, but one with several unique challenges. Uniformity is not always a good thing, but a little bit would be nice.

In July 2017 Abanka sold €246m-worth of NPLs as part of the bank’s shift towards privatisation. These portfolios have underwritten the country’s banks’
performances for too long and are indicative of a region that lacks uniformity. And the diversity of regulation creates a minefield for lawyers across the CEE region.

Erik Steger

“We still work on NPLs in Romania, where this continues to be a necessity,” says Wolf Theiss managing partner Erik Steger (right). “I’m not surprised it’s still happening. It’s just a sign of how diverse the regions are. If you compare Poland with Romania or Slovakia, they are completely different.”

Wolf Theiss partners Katerina Kraeva and Richard Clegg, both based in the firm’s Sofia office, advised the Bulgarian National Bank during a quality review of its assets which found that 16 per cent of total gross loans in the country were NPLs.

A 2014 review of the highest levels of NPLs in CEE showed Bulgaria, Romania and Slovenia all with double-digit percentages of these negative assets on their books. The only two nations ahead of those three in the ‘NPL league’ were Cyprus, in first place, and Greece.

“In the EU the same legal basis should apply but, in practice, matters are handled very differently”
Clemens Hasenauer, CHSH

What is uniform across the region is the frustration felt by lawyers at the lack of uniformity in the application of banking laws and regulations.

“In the EU the same legal basis should apply but, in practice, matters are handled very differently,” says Cerha Hempel Spiegelfeld Hlawati (CHSH) co-managing partner Clemens Hasenauer. “Exactly the same wording applies in all these jurisdictions but it is handled and interpreted quite differently. It shows the EU is not at the stage where it should be. It should make things easier but sometimes it’s the opposite.”

CHSH endured this headache as it acted for an unnamed bidder that nearly changed the course of Italian banking giant UniCredit’s €3.5bn sale of asset management business Pioneer to French asset manager Amundi. The firm carried out the bulk of the due diligence for the client on the deal, only to be left frustrated by regulatory challenges. On a deal of this size, CHSH regularly has between five and 10 lawyers doing the due diligence. They are certainly not alone in completing these deals with larger international firms.

Regulatory changes may ensure a steady flow of deals but they make for a difficult working environment.

Good year for M&A predicted

Lack of uniformity has not slowed the flow of deals, and does not look like doing so. The variety means investors can get high returns for assets that can no longer be found in most traditional markets. It is widely predicted that 2018 will be huge for M&A.

“In Slovenia in 2018 we will see larger M&A transactions,” says Karanović & Nikolić (K&N) senior partner Marko Ketler. “There are several in the pipeline, such as [insurance company] Adriatic Slovenia and Abanka. All of them will be €50m-plus.”

When it goes through this year, the Abanka sale in Slovenia should provide a benchmark of what the CEE market can expect.

The region’s development in the past 20 years means it is a relatively low-risk, high-yield environment for anyone looking to break into it.

“Whatever comes from the EU – data protection regulation, for example – means work for lawyers” Michael Lagler, Schoenherr

Markets such as London or New York are still safe but it is harder to get significant returns. Both have seen great interest from the East, but European investors are casting their nets closer to home.

“Investors are looking at what can be acquired in CEE – mostly we see German funds, but there’s a lot of global funds too,” Lagler says. “In Serbia, there’s a lot of money coming from South Africa, China and Asia generally. Hungary is interesting Asian investors who believe they can do good business with high-quality, low-price transactions. When it comes to Poland, the Czech Republic and Austria, it’s mainly European investors, especially Germany.”

Germany’s investment relationship with Poland reached record levels last year, with more than €100bn flowing into the country.

The trend was not lost on Wolf Theiss, as the firm bolstered its office in Warsaw with the triple hire of M&A partner Michalski Jacek, real estate finance partner Przemyslaw Kozdoj and Poland head of real estate Tomasz Stasiak late in 2017.

“Clients’ will is very much driven by recovery from the [global financial] crisis,” says Steger of Wolf Theiss. “In Western European countries you can’t achieve high yields anymore. They’ve all been harvested. In CEE you can still get them. We’re seeing this in industry and production, which are growth mode.”

One deal that could cause a seismic shift in the region is the protracted sale of Croatian supermarket Agrokor. Schoenherr is acting for the Russian bank Sberbank in the Agrokor administration and the firm’s managing partner says this could have big repercussions.

“Last year, one of the big changes that came out of Austria was the merger between Raiffeisen Bank International and Raiffeisen Zentralbank,” says Lagler.

“In Austria, this is the most consequential merger of recent years. They’re one of several banks that are active in the restructuring of Agrokor. These matters are so large that you can’t ignore them. Agrokor has such economic importance that it can affect the country’s GDP by a significant amount.”

It is not often that one deal shifts a nation’s entire economy, but this is unlikely to be the last one that does.


Regulatory headaches aside, consolidation work is moving around CEE. This work can cross many jurisdictions, meaning collaboration is key. CHSH, Kinstellar, K&N, Schoenherr and Wolf Theiss work with some of the world’s largest law firms on a regular basis.

The magic circle and big US firms handle the macro issues while the locals manoeuvre through the regulatory minefield in the smaller EU nations. All five of the above-mentioned firms say they work with firms such as Clifford Chance, Latham & Watkins and White & Case. These big players have either expanded or diminished their CEE presence in recent years, resulting in fluctuating workflow for the local firms.

“Across this region you see many enormous banks selling their subsidiaries,” says Lagler. “Just look at when SocGen left Croatia. Digitisation has also had a major impact on the banking side. Whatever comes from the EU – data protection regulation, for example – means work for lawyers. And MiFID II requires a huge team, by our standards. The implementation provides us with a lot of work.”

“In Western Europe you can’t achieve high yields any more. They’ve all been harvested. In the East you still can” Erik Steger, Wolf Theiss

Schoenherr has acted in Croatia, Serbia and Slovenia on deals with a total value of more than €4bn, including SocGen’s sale of Splitska Banka to Hungary-headquartered OTP Bank. The deal saw OTP boost its market share in Croatia by a reported 10 per cent.

A three-lawyer team from Schoenherr acted for SocGen out of the firm’s Zagreb office, with Jones Day’s Paris office taking the lead. CMS partners Eva Talmacsi, Hrvoje Bardek, Jelena Nushol and Tamara Jelić Kazić acted opposite on the deal.

Local firms say they regularly encounter CMS on larger regional transactions.

“There’s a lot of banking consolidation going on in Slovenia and Serbia,” says Ketler. “The banks were quite indebted and had to tackle that issue, which saw many deals close in the three countries. We work with the magic circle on deals like these as well as with major global and US law firms such as Latham & Watkins, Sidley Austin, Baker McKenzie and Hogan Lovells. On large transactions, there is usually an English or US firm as well.”

K&N supported Weil Gotshal & Manges when the pair advised OTP Bank on its acquisition of Vojvođanska Banka in Serbia last August. The National Bank of Greece instructed Freshfields Bruckhaus Deringer and Serbia’s Bojović & Partners on the other side of the deal.

Click on image to enlarge

International collaboration is nothing new to the region. With so many of the big international entities taking the reins on deals, the likes of CMS and White & Case are regularly cited on the other side of deals as opposed to more local firms.

“We see the large international law firms that have offices in our jurisdictions most often,” says Kinstellar counsel and head of Czech competition and state aid Tomáš Čihula. “Wolf Theiss and Schoenherr are both very good firms but we don’t usually see them on the larger deals in the region.

“CMS is strong in the region and has a large network. It’s the same with White & Case, even though it has left some markets and doesn’t have such good coverage now as it used to. Most often, we see Clifford Chance and Allen & Overy; then I’d mention Wolf Theiss and Schoenherr.”

Air of authority

Kinstellar has one advantage over other firms in the region – it has been a member of Linklaters’ network since 1999. The Czech-founded firm still receives a healthy proportion of its international work through this connection, and Linklaters continues to be Kinstellar’s most frequent collaborator. It is a link that lends an air of authority.

The benefits a big name can bring to a deal are not lost on Čihula. He says: “When we can team up with an international law firm, it’s usually more credible for the clients to receive English and US law advice.”

It is clear that CEE is a fragmented and complex region that can cause headaches for the firms involved. However, if the appetite to invest continues at its present rate there will be plenty of work for local firms and their international counterparts.

CEE law firms of the year: shortlists

The following firms were shortlisted for The Lawyer European Awards on 15 March:

Austria: Cerha Hempel Spiegelfeld Hlawati; DORDA Rechtsanwälte; Fellner Wratzfeld & Partners; Schoenherr Attorneys at Law; and Wolf Theiss

Winner: bpv Hügel Rechtsanwälte

Central Europe: BBH, advokátní kancelář; Lakatos, Köves and Partners; PRK Partners; Schoenherr Attorneys at Law; and Wolf Theiss

Winner: Kinstellar

Eastern Europe and the Balkans: Gecić Law; Karanovic & Nikolic; Kinstellar; Musat & Asociatii; Popovici Nitu Stoica & Asociatii; Tuca Zbarcea & Asociatii; and Wolf Theiss

Winner: Maravela Asociații

This article is taken from The Lawyer’s monthly magazine. The March issue focuses on partner retirement and includes the results of a major new survey. To subscribe please click here.

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