M&A plus

Deals are on the up in Switzerland, while measures to shed light on the country’s mysterious banking system also herald work for lawyers

For almost as long as Switzerland has had banks – and the oldest modern version dates back to the mid-18th century – they have been shrouded in secrecy. Quintessential images abound of dark, wood-panelled rooms, shady, fedora-hatted characters unlatching attaché cases from their wrists and handing over millions in cash to nondescript, discrete bankers. In short: a money launderer’s paradise.

Bumpy track

That stereotype should, say the country’s legal elite, be consigned to history. But the road to financial services redemption and purity is not smooth. At the end of March the Swiss government had to quash suggestions it was on the verge of cutting a deal with the US in relation to hardball negotiations around undeclared funds stashed in local banks by Americans.

“There is no agreed framework,” a Bern spokesman told Reuters, before continuing in a tone of weary resignation, “Negotiations for an industry-wide deal to enable all Swiss banks to draw a line under the matter are ongoing.”

So while senior lawyers in the jurisdiction proclaim without hesitation that “banking secrecy is dead”, its death throes are causing Swiss bankers a lot of pain. While a co-operation deal with the UK Treasury came into force at the beginning of this year, negotiations with Washington’s Internal Revenue Service and the German taxman have been considerably more fraught.


Stressful times for Swiss bankers are likely to translate to boosted bottom lines for leading local law firms. If the US authorities shun a blanket agreement covering the Swiss banking sector and insist on dealing with banks individually, all those institutions will have to be advised separately.

“It’s unlikely there will be an overall solution,” predicts a partner at one of Switzerland’s biggest corporate firms.

He points out that the Americans are bolstering negotiations with a big stick, threatening legal action against around a dozen banks.

“The US authorities are comfortable having this threat out there and they get a lot of voluntary disclosure,” continues the partner. “And the Americans are good at collecting fines. I expect there will be further payments made shortly by several banks.”

Zurich-based lawyers are not surprised at the US position.

“I’ve said from the outset that a global deal covering the whole industry is unlikely,” comments Eric Stupp, a banking regulations partner at Bär & Karrer, who is also vice-chairman of the board of directors at the Zurich branch of Goldman Sachs. “But it is possible the two governments will agree a protocol setting out how banks could clean up their pasts. That would make things a bit less cumbersome.”

René Bösch

Homburger’s financial services head René Bösch agrees that some talk is better than none.

“There’s a lot of guessing about what’s going on,” he says. “And there are indirect signs the two delegations have at least clarified their respective views.”

While he too predicts that a comprehensive deal covering all Swiss banks is remote, Bösch still envisages scope for some sort of agreement.

“More likely is a framework giving some guidelines relating to the conditions in which banks should negotiate either deferred prosecution or non-prosecution agreements,” he says.

The brave new world of banking transparency may be too much for some smaller Swiss banks. Lawyers say they have already spied signs of market consolidation, with a spate of mergers expected in the near future, if not outright failures.

“There are confidential talks and negotiations,’ says Pestalozzi chair Michael Kramer. “And there will definitely be some merger activity in the next month.”

Scrutiny of the bounty

Along with banking secrecy and tax evasion, another traditional element of Swiss business culture – unfettered corporate decision-making – is on the endangered list. At the beginning of last month the Swiss public shocked global business with a referendum vote backing enhanced shareholder scrutiny of executive pay packages.

Some 68 per cent of voters threw the form book to the wind and backed a measure locally dubbed ‘the fat-cat initiative’. The legislation – which is not scheduled for implementation for at least a year – will allow shareholders in publicly listed Swiss companies to curb senior executive remuneration, particularly cracking down on golden hellos and goodbyes, as well as bonus payments and salaries generally.

The measures have been six years in the making and Switzerland’s major corporations fought every trench, not least by threatening that big business would jump ship to friendlier jurisdictions.

While lawyers suggest the worst excesses of corporate panic over the measures had a whiff of unnecessary scaremongering, some maintain that there will be negatives.

“We won’t see a lot of new companies relocating to Switzerland,” predicts Stupp.

On the other hand, lawyers point out that the regulations do not create a cap on remuneration packages and therefore, as Stupp says, are actually not that bad.

“It’s still possible for a company to pay whatever it likes – the measure simply strengthens shareholder rights,” he says.

Bösch acknowledges that the vote runs “counter to the historical Swiss economic environment”, but says big business in the country misplayed its opposition.

“There’s been a lot of tactical manoeuvring behind the scenes,” he says. “The banking industry, and industry at large, wasn’t able to get to grips with the issue and resorted to some really stupid counter-arguments, claiming international companies would move out the day after the proposal was implemented. Then there was a spate of large payouts and finally people generally said, too much is too much.”

In the long term, forecasts Kramer, fallout from the remuneration rules will not be profound. But in the short term businesses are running to their lawyers.

“It will certainly be best practice for big corporations to check their remuneration schemes,” says Kramer. “It’s something we have to deal with and explain to foreign companies looking to set up in the jurisdiction.”

According to Bösch, clients are already coming through his firm’s doors worried about keen share-holder engagement.

“The regime has already created work for law firms,” he reports, “and will continue to do so because all publicly listed companies in Switzerland will have to amend their articles to accommodate the requirements. Remuneration committees as well as company boards will rely even more on counsel’s advice to assess whether certain payments are permissible.”

Not all lawyers are convinced.

“I wouldn’t expect the work to be substantial or be ongoing,” says Lenz & Staehelin M&A head Rudolf Tschäni, damping down expectations. “Standard boilerplate language will develop and companies will adapt. Lawyers will be consulted, but it’s not rocket science. Certain regulations will be passed by the board to implement and there will be a recurring item every year.”

Andreas Casutt

Niederer Kraft & Frey managing partner Andreas Casutt agrees that while the vote and ensuing legislation has triggered much harrumphing, the long-term impact will be minimal.

“There are some cumbersome rules preventing certain forms of remuneration, so that will need to be dealt with,” he explains. “But everyone should be able to live with it and we don’t envisage companies leaving Switzerland because of this legislation.”

Arguably, the most worrying aspect of the remuneration rules for senior corporate figures is the prospect of jail time if they get it wrong.

Bösch explains: “The real threat to the Swiss economy is that violating the regime can constitute a criminal offence. That exposes the chairman and other board members to criminal sanctions. Whenever there’s that type of threat, there’s plenty of work for counsel.”

Deals me in

There is also a surprising amount of work for lawyers in the M&A market. Although this has been sluggish – or dodo-like – in most jurisdictions, Swiss lawyers claim to have seen significant sparks of life in transactional deals in the first quarter of this year.

The upturn kicked off last August when Swiss banking group Julius Baer negotiated a $880m (£580m) purchase of Bank of America-Merrill Lynch’s private wealth business. At the start of April the bank announced it had absorbed operations in Chile, Uruguay, Luxembourg and Monaco, and planned to incorporate further regions, including the UK, later this year.

Other significant mergers at the end of last year included negotiations between local mining giant Glencore and China’s Xstrata, and the Johnson & Johnson-Synthes deal in the pharmaceuticals sector.

“The deals market has been pretty good this year,” says Bösch, with undisguised surprise. “The market is not at pre-crisis levels, but we’ve seen some good M&A activity.”

Lawyers point to the fixed income and corporate hybrid bond markets as well as a welcome return of private equity investors to the Swiss landscape, a factor that was effectively absent in the darkest years of the global crisis.

Kramer comments: “Compared to the rest of Europe and the wider world we are lucky – the market is still strong. But it would be wrong to say there has been no impact. It’s true that compared with the golden years M&A activity is not where it was, but we are seeing some transactions and we’re happy with the overall legal market.”

The luxury sector – one of the country’s stalwarts – is also enjoying rejuvenation, with Japanese and Chinese investors leading the charge. Facilitating interest has been the Swiss central bank’s recent move to dowse the country’s strong currency by buying euros. And while the dollar remains relatively weak against the Swiss franc, lawyers maintain their fees still compare favourably with white-shoe Manhattan practices.

“Swiss targets have again become attractive and affordable to international buyers,” says Niederer Kraft & Frey partner Philippe Weber. But for Asian investors the exchange rate has not been such an issue.

“The Chinese have so much money it doesn’t matter,” says Weber. “Their only question is – is it a growing business? They can buy anywhere in the world.”

Pressure points

That broad commercial environment is easily supporting firms focusing on M&A, but in a jurisdiction where bagging one or two crucial deals can make all the difference to the annual balance sheet, competition is increasingly fierce.

“Some firms are not doing as well as in the past,” says Kramer, while Casutt adds: “The second and third-tier firms are feeling the pressure.”

As with many other jurisdictions, that pressure is being applied by general counsel at corporate in-house legal departments.

“Even in Switzerland they are taking a harsh look at fees and fee structures,” explains Tschäni. “You see ‘beauty contests’ and requests for proposals, and general counsel are taking the view more frequently that for certain types of work they don’t need a first-tier law firm. For commodity-type work they will look at less expensive firms.”

In addition to the shock of having to slip into metaphorical high heels and bathing costumes for a stroll down the catwalk, Swiss lawyers lack the flexibility in relation to fee-discounting enjoyed by their English counterparts.

“In London,” explains Tschäni, “you will see from the start that the fee rate is a question of negotiation – the market is so large and there are so many transactions that the firms can look at it differently. In Switzerland we don’t have the same volume and number of deals, and we want to treat clients equally. Therefore we can’t negotiate on fees.”

He maintains that, for the most part, Swiss business law firms are standing by the billable hour. However, for financing and capital markets instructions especially, firms will provide fairly strict price estimates and even fee caps.

“Firms will also look at transactions in phases and be relatively precise on costs for some, while for other phases – for example, around negotiations – you can’t expect a fee cap,” Tschäni adds.


A by-product of the tougher legal market is the move by some Zurich and Geneva firms to fly in the face of Franco-German cultural differences and tie the knot in a bid to leapfrog into the top 10 by size.

A top-four firm partner explains: “It’s difficult these days to be a law firm of only 50 lawyers.”

Outside disinterest

One threat not bearing down on the Swiss legal profession is the shadow of global practices. It was not always so. Around two years ago the tight-knit legal sector was abuzz with rumours that Allen & Overy(A&O) was not very subtly prowling Zurich sniffing around for a mate. Such was the conviction of leading Swiss partners that they were soon to be engaged in hand-to-hand combat with a magic circle player that they stated with certainty that A&O had leased premises and was cherry-picking local teams.

Today, senior partners at Zurich firms shrug and chunter “Allen & who?”

“Everything is quiet,” says Kramer. “The rumour was that in the first instance [A&O] wanted to take over a firm but, failing that, they would pick teams or rising stars from various local firms.”

Kramer maintains that plan failed “because the leading Swiss law firms are doing quite well and most Swiss lawyers like practising at independent firms”.

Weber, who a decade ago was seconded to A&O, adds: “They probably couldn’t get the people they wanted – simple as that. Our view in the big Swiss firms is that it wouldn’t be a good move for a UK firm to move in because they can already service well the Swiss clients they have from London.”

Kramer agrees.

“Perhaps they did some calculations that confirmed for a foreign law firm the Swiss market is relatively small,” he says. “And there’s nothing to gain from being in Switzerland when working on big capital markets transactions – those are run out of London and Frankfurt.”

Tschäni says it is not only the magic circle that is cool on the idea of opening in Switzerland – the wider top tier of English firms and their US counterparts are equally reluctant.

“The UK and US firms are not breathing down our necks,” he says. “The domestic firms’ level of service is high and quality is good. It’s a small market, so people really have to think about whether they want to come.”

Philippe Weber

Bird & Bird’s recent association with BCCC Avocats is an example of the way some Anglo-Saxon firms are targeting the Swiss market, and future entrants may employ a similar strategy.

But the partners over at Niederer Kraft & Frey say the top Swiss firms are not complacent.

“We want to maintain our top-four local position so we can be prepared in case a leading foreign firm ever does come into the market,” says Weber. “We’d want to be able to adopt a position similar to that of Hengeler Mueller in Germany. And that’s the same for the other big Swiss firms.”

Key figures: Switzerland

GDP (2011): $659.3bn

Inflation (Feb 2013): -0.3%

Population: 7.9m

Life expectancy at birth: 82

Unemployment (Jan 2013): 3.4%

Source: World Bank, Federal Statistics Office of Switzerland