Retail and Foreign Banks

The high level of activity in retail and foreign banking has provided a great deal of work for legal advisers. But only firms that can adapt to the sector’s change in direction can hope to win a slice of the banking pie. Ryan Dunleavy reports.

The retail and foreign banking horizon has radically changed over the last decade. Consolidation has been key. Although talks between the two German institutions Deutsche Bank and Dresdner Bank have just fallen through, the Royal Bank of Scotland has recently merged with NatWest, Far Eastern player HSBC Holdings acquired the UK’s Midland Bank and is rumoured to be in talks with German giant Commerzbank, and Lloyds Bank has joined forces with the TSB.

And with consolidation comes the integration of in-house departments and the rationalisation of outside legal advisers. HSBC head of legal Richard Bennett says: “With the mergers comes lots of work for lawyers and lots of fees made. But then rationalisation goes on. Our panel moans about not getting enough work from us now.”

HSBC’s panel consists of more than 20 firms and includes Allen & Overy, Clifford Chance, Linklaters, Norton Rose, Eversheds in London and Birmingham, Stephenson Harwood and Nabarro Nathanson.

Alliance & Leicester is the latest bank to review its main panel. The Leicester-based bank is understood to use Freshfields, Linklaters & Alliance, Taylor Joynson Garrett and Allen & Overy for its London-based work and a range of regional firms, including DLA and Hammond Suddards, for nationwide work.

Barclays Bank is rationalising its panel and plans to cut the number of practices it instructs on an ad hoc basis (The Lawyer, 28 February).

Barclay’s main panel – which it calls “The Matrix” – consists of 11 firms. It is understood to include Clifford Chance, Allen & Overy, Slaughter and May, Freshfields, Lovells, DLA, Pinsent Curtis and Eversheds.

At Canada’s largest bank, Toronto-Dominion, the London office has already cut its panel this year from more than 20 to two (The Lawyer, 13 March). Linklaters and Norton Rose pushed Clifford Chance and Allen & Overy off the panel after a final set of tenders to become the only principal advisers.

Other firms the bank has used in the past also have a question mark over their futures. These include Eversheds, the London offices of US firms Weil Gotshal & Manges and White & Case, and Dublin-based McCann FitzGerald.

In such an environment it is crucial that firms understand how the direction of banks is changing and then adapt appropriately to ensure their panel places.

Alliance & Leicester’s head of legal Kathrine Hughes explains what she will be looking for when picking her new panel. “What impresses me about a firm is proactive and constructive advice. We do not want textbook answers. We want business-minded firms,” she says.

“The internet is the biggest issue, along with the transfer of data around the organisation. Firms must specialise in data protection, telecommunications and IT. Some of it is based on previous performance. If they are good we return to them.”

Hughes adds that firms on the current panel do different types of work. “The London firms do larger transactions. But we mix and match,” she says.

Hughes advocates the use of directories for picking firms for legal issues that are new to the bank. But not all banking in-house counsel agree.

Peter Jones, head of legal at Bank Austria Creditanstalt International’s London office, says: “I do not look in directories. I meet people and talk to people. I know the market.

“I look for someone who is able to do the job. I want someone who I have confidence in with the ability to be commercial, but it must be someone I know.”

Jones instructs Allen & Overy, Clifford Chance, Lovells, Simmons & Simmons and Taylor Joynson Garrett. He says: “We tend to go for City firms because they are usually the best.”

Ann Page, head of legal at the Co-operative Bank, says: “We use regional firms for Manchester and City firms for London. But it also depends on the value of the work. If it is a merger with another bank we would pay more and get a City firm.”

But Page adds that regional firms have some natural advantages over City practices. “I think regional firms do a lot of things just as well and are better value for money. They know the market and you as a person,” she says.

“They just have more personal contact with banks. It is bound to influence who you deal with and instruct and also the service you get from them. It has advantages such as if I need a locum, I can ask for a specific person.

“Saying that though, if I were based in London I would use London firms unless there was a reason to take more work into the regions.”

Page instructs Linklaters, Freshfields, Herbert Smith and Nabarro Nathanson on London issues, and Addleshaw Booth & Co, Hammond Suddards, Masons, Halliwell Landau, Cobbetts, Chaffe Street and DLA on regional issues.

But in many cases Page chooses particular lawyers to instruct rather than the firms they belong to, and she has been known to switch firms if specific lawyers move practice.

She cites the example of Andrew Smith. When he left DLA to join Masons, the bank went with him and the company now uses both firms.

Many banks believe that personal contact and local expertise is very important when deciding which firm to instruct.

This view has led HSBC’s Bennett to argue against using global firms as part of an international panel. “I don’t particularly need a Clifford Chance or Linklaters global law firm approach because we have different relationships in different countries,” he says.

“We like Azerbaijan lawyers to do our Azerbaijan work. Linklaters or whatever would have to learn about what we do there first. In some countries firms’ rights to work there are restricted anyway.”

But Matthew Semmence, manager of legal affairs at American Express Bank in London, disagrees. He says: “As a company with a global presence we would rather go to one firm to cover all our bases. American Express has one firm that is a particular favourite. Wherever possible we will use them or their associate practices in whatever jurisdiction.”

Semmence adds: “One thing I have focused on is whether a firm gets you involved with different solicitors and possibly different departments. We don’t like this.

“It is very important that a firm has a person to consistently act as the communicator with us. So when we are told that we are waiting for some information on say tax and someone else looking at cross-border implications we do not have to be left dangling.”

The way banks review their outside legal advisers also differs. Page expects a firm to give a report of itself every six months and she advocates going into the firm to meet lawyers. But she says that she would not formally review a firm’s place on the panel until that particular practice “did something wrong”.

Yet Bennett compares HSBC’s panel firms against each other on performance every six months.

He says: “We go to the different parts of the business and say “We are using X, Y, Z and we want a report at the end of term’. If we were getting bad reports we would say to the firms “Could you do better?’ Then we think how we would go about it.”

A change in internal structure can make a firm more attractive. Page says that she is considering adding Eversheds to her panel because it has set up a new retail finance section. “We have set them aside because we are impressed by this,” she says.

But one belief banks seem to share is that they do not think that a beauty parade is the ideal way to select firms.

Alliance & Leicester’s Hughes says: “We have done beauty parades in the past but they are shallow. They do not envisage the complications of the different transactions. They can be more marketing than substance because they are all about presentation.”

Jones sums up banks’ attitudes to beauty parades more bluntly, saying: “Beauty parades are a waste of time.”

Most banks would rather put out invitations to tender. That way they receive responses based on hard facts about abilities and prices rather than assessing a group of firms on how they present themselves through carefully thought-out marketing.

Page says that she also looks at what work the firm will put her way in return. “I have a continual review based on reciprocal business.”

She says these are “introductions to their clients that may need banking support…and banking products that [the firms] buy from us”, such as dispute claims.

In banking’s ultra-competitive environment opinions differ on how a firm should sell itself to clients. Some refer to directories, others just keep their eye on the market through publications and word of mouth.

Some prefer City and global firms, and most agree that they would rather receive professional tenders based on value and not marketing.

The lesson in all this is that the only way firms will make themselves attractive in such a competitive market is to understand the individual clients.


Abbey National

In the last 10 years, Abbey National has acquired UK bank Cater Allen, finance house First National Group, UK insurance companies National Provisional and Scottish Mutual, and last month, train leasing company Portabrook.

FTSE ranking: 25

Market capitalisation: £11.7bn

Alliance & Leicester

The Alliance & Leicester prides itself on offering a diverse range of mortgage services second only to Abbey National. The company converted from a building society to a plc three years ago.

FTSE ranking: 89

Market capitalisation: £3.5bn

Bank of Scotland

The Bank of Scotland launched a hostile bid for NatWest Bank last year but failed. Instead NatWest agreed to join forces with The Royal Bank of Scotland in a multi-billion pound merger earlier this year.

FTSE ranking: 38

Market capitalisation: £8bn

Barclays Bank

Barclays is undergoing a major overhaul of its external legal advisers. Last summer it slashed its corporate recovery panel from 13 to five, and this year it is revising its main panel of 11 firms and culling the number of firms it instructs on an ad hoc basis.

FTSE ranking: 12

Market capitalisation: £24.7bn


Halifax is about to launch an internet banking site. Last year it acquired rival Birmingham Midshires Building Society.

FTSE ranking: 23

Market capitalisation: £13.5bn

HSBC Holdings

Has been on a buying spree over the past two years. In the last year it acquired the Republic New York Corporation and US company Safra Republic Holdings.

FTSE ranking: 5

Market capitalisation: £60bn

Lloyds TSB Group

Lloyds Bank merged with the Trustee Savings Bank in 1995 to form Lloyds TSB. Since then the bank has acquired Scottish Widows and Cheltenham & Gloucester building society.

FTSE ranking: 9

Market capitalisation: £36.2bn

National Westminster Bank and The Royal Bank of Scotland

The banks finally agreed to merge in February and will create one of the largest UK banks when the deal is completed later this year. Only The Royal Bank of Scotland listings are currently available. The newly-formed company’s ranking and market capitalisation is being reassessed.

FTSE ranking: 13

Market capitalisation: £22.3bn


The Woolwich bank cut staff numbers in its legal department, including four lawyers, from 32 to 12 at the end of last year. The bank has also been on an expansion drive in the last decade. It merged with the Town & Country Building Society and it acquired secured lending company First Plus.

FTSE ranking: 64

Market capitalisation: £5.3m