Spain: /Portugal: Banking & Finance Annual Report 2017: Feeling Edgy

Last Updated: 11 August 2017
Article by Iberian Lawyer

Brexit dealt a blow to banking and finance lawyers as investors got nervous, and this uncertainty looks set to continue – however, this problem will be partly offset by a new wave of foreign investors and direct lenders that are targeting the Iberian market

Banking and finance lawyers claim that, in general, the market is improving and that there are currently good opportunities for law firms. However, it's not all been plain sailing. Brexit, in particular, had the effect of unsettling investors, and a number of lawyers in Spain report that the flow of deals slowed as businesses' took time to digest the implications of the UK's historic referendum. Though investment activity picked up again in the latter part of 2016, the UK government's recent invoking of Article 50 – which begins the process of withdrawing from the European Union – could mean that deals start stalling once again, lawyers warn. That said, it's not all doom and gloom – institutional investors are targeting Spanish assets, while there is also high demand for legal services from construction companies seeking to refinance debt. In addition, an array of non-traditional lenders are also currently looking for business in Spain.
Meanwhile, in Portugal, banks are frantically trying to clear up their balance sheets – there is a consequently a massive amount of non-performing loan portfolios, for example, that need to be shifted and this is an area that is providing rich pickings for lawyers in Lisbon. Meanwhile, new players are entering the market as the country's banks pass into foreign ownership. In addition, shadow banking – specifically, lending by private equity funds and insurance companies – is on the increase.    
Deal flow was affected by the Brexit vote last year, says Allen & Overy partner Ignacio Ruiz-Camara. "There was a slowdown for a couple of months," he adds. Despite this, Ruiz-Camara says it was a busy year in which a wide range of financing options came to market, with project bond structures being "particularly successful". He adds that there were also a significant number of sales of non-performing loans.

Volatile market
According to one partner, 2017 has been "somewhat uncertain and volatile". He adds that, though deals continue to flow, there is a degree of political uncertainty – the partner, who works in the Madrid office of a 'Magic Circle' firm, expresses some doubt that Brexit will "actually happen", despite the UK's invoking of Article 50, which begins the formal process of withdrawal from the European Union. He continues: "For investment bankers in London, it's business as usual."
One of the most significant developments in the last year has been banks offering more friendly terms for borrowers says one partner. "Banking deals now have terms that are more appropriate for borrowers," she says. Meanwhile, Uría Menéndez partner Ángel Pérez López says the traditional banks are now facing significantly more competition "not only among themselves but also with some direct lenders as well as the capital markets". Pérez López also says that Spanish real estate investment trusts, SOCIMIS [Sociedades Anónimas Cotizadas de Inversión en el Mercado Inmobiliario], are the most active players in real estate financing, acquiring commercial real estate such as shopping malls, office buildings and hotels. In addition, distressed M&A deals are also generating significant work for banking lawyers, as are sales of non-performing loans. In this regard, Pérez López says the volume of transactions involving secured non-performing loans now exceeds that involving unsecured non-performing loans. He adds that 2017 is expected to be a "very active year for distressed M&A due to new banking regulations on risk policies and loss allowances, which will be effective on 1 January 2018 and will foster plenty of divestments before that date."
There is currently a massive amount of liquidity in the market, according to Gómez-Acebo & Pombo partner Rafael Aguilera. He adds that Spanish credit funds have entered the market in the last year, as well as institutional investors, to finance Spanish companies. However, Aguilera adds that he is pessimistic about Brexit: "There was a slowdown of transactions due to Brexit and my concern is that this slowdown may return following the UK's invoking of Article 50."
Considerable opportunities for banking lawyers are being generated in the construction sector as construction companies look to refinance their debt, lawyers say. Meanwhile, Brexit could mean that Spanish law is increasingly used when drawing up contracts, according to Cuatrecasas partner Iñigo de Luisa. "Because of the Brexit-related uncertainties, we already see more reliance on Spanish law with regard to finance documentation," he says. "There could be more international funds relying on Spanish law, not only for restructuring situations but also for new facilities." Pérez López adds that there is "uncertainty as to the proceedings and timings for the recognition of English court rulings in Spain after the UK leaves the European Union".
However, Ruiz-Camara argues that English law will continue to be used outside the UK, regardless of Brexit. He adds that Brexit will create a lot of work for lawyers as "it will activate transactions which would not have happened otherwise and deals will have to be restructured". In a global context, there is an understanding that the US government could be set to abolish some existing banking regulations. Jabier Badiola, partner at Dentons says that, if this was to happen, it could lead to "financial business being transferred there [the US]".

Disappointed investors
There have been some "inconsistencies in the interpretation of the law by different insolvency courts" that have disappointed investors, according to Ruiz-Camara. However, he adds that there have been more deals, particularly disposals and securitisations. How will law firms adapt to the changing market conditions? Ruiz-Camara says that some firms could adopt the approach of having smaller teams and being more selective in the deals they take on.
If work is of a commoditised nature, clients are not willing to pay significant fees, say lawyers. However, there is a perception that, if the client believes the law firm is adding value to the deals, they will pay larger fees. Lawyers also report that some clients have panels and that some law firms agree to offer some services for free in order to be given the opportunity to bid for future work. Freshfields' partner Ana López says that one of the major developments in recent years is that it is becoming more difficult to predict exactly how deals will be "structured and refinanced given the wide range of financial instruments and flexibility that are available in the market".
Alfredo Barona, partner at DLA Piper, says in general, the market is improving and there has been an increase in leveraged deals. However, he adds that global political uncertainty is a concern. In addition, Barona observes that the market is now much more challenging for lenders due to the increase in competition and the difficulty in finding attractive business that requires financing.
There is an increased interest in direct lending, but there is considerable competition and limited opportunities for lenders at present, according to Clifford Chance partner Rodrigo Uría. He adds: "The new lenders entering the market are here to stay – it's currently a borrowers market and they are driving the deals."

EU: Uncertain future
Pérez López says that the sophistication of both products and players in the Spanish finance market continues to increase, and there is considerable finance-related M&A, particularly in relation to assets in the renewable energy sector. However, he also says that a decrease in restructuring work – which has been "one of the main work streams for banking lawyers in recent years" – is a concern, as are uncertainties surrounding the future of the European Union. Pérez López adds that competition between banking clients as well as law firms is fierce and the pressure on fees continues.
With regard to the activities of the legal arms of the ´Big Four' auditors in the banking and finance market, Barona says that, while they are not usually "seen on big deals at present, they are doing things really well and could potentially be serious competition to big law firms and they need to be respected". Meanwhile, one partner says the 'Big Four' have the contacts that enable them to "penetrate corporates" as well as significant resources.  
De Luisa remarks that there are significant opportunities for financial transactions in Latin America, particularly Mexico, Colombia and Peru. He adds: "All Spanish firms are deploying resources there and in many situations, firms' finance practices are taking the lead in key infrastructure and energy projects in these jurisdictions."



Portugal: Banks under stress
The Portuguese banking sector is under stress, according to Servulo managing partner Paulo Câmara. "There are regulatory constraints, staff cuts and new owners," he says. "There is less investment from Angola and more from China." Another major issue facing banks is non-performing loans and, specifically, whether there should be a single universal solution to this problem, or whether solutions should be tailored to meet local requirements, Câmara adds. He also says that smaller banks and consumer credit organizations are entering the market. However, there are fewer initial public offerings (IPOs), partly because businesses "fear the regulation costs involved when listing," according to Câmara. Yet there are considerable opportunities for law firms to advise banks, he adds, to the extent that his firm is hiring more people to meet demand.
A lot of banking lawyers' work is devoted to clearing banks balance sheets – particularly selling off non-performing loans – says Uría Menéndez partner Pedro Ferreira Malaquias. He adds that private equity funds have a growing role in the Portuguese banking sector. Meanwhile, Ferreira Malaquias says lawyers also dedicate "many hours" to banking regulation work, in particular matters concerning how the Portuguese government will interpret EU banking regulations. He adds that there are around €40 billion worth of non-performing loans that are up for sale in Portugal and some private equity funds are keen to buy them.
Foreign banks are becoming more active in Portugal due to Portuguese banks' lack of availability with regard to lending, says Filipe Lowndes Marques, partner at MLGTS. He adds that the uncertainty in the Portuguese banking system is highlighted by Novo Banco being up for sale, Millenium BCP being subject to state intervention and therefore having its "hands tied", as well as shareholder disputes at Banco BPI. Lowndes Marques also says that there are now more non-traditional lenders – such as Caixa Credito Agricola – appearing in syndicated financing deals, though they are "still feeling their way in the market".

Shadow banking
Shadow banking is another growing trend in the Portuguese market, according to Lowndes Marques. He adds: "Private equity funds and insurance companies want to lend [in Portugal] – technically only banks and credit institutions are authorised, but I don't think entities licensed elsewhere can be stopped from lending in Portugal – for example, if a credit fund is set up in Luxembourg or France, can regulations in Portugal stop them lending here?"
There is, in general, a greater emphasis on the management of balance sheets in the banking sector, says Linklaters counsel Gonçalo Veiga de Macedo. "There is a focus on the sale of non-core assets – banks are currently selling loan portfolios and residential mortgages," he continues. However, Veiga de Macedo says there is now a "spotlight on Portugal as a new destination for investment – real estate assets have more value".
Achieving a "certain, large, scale" is an increasingly important objective for banks, Câmara argues. "It is difficult for a bank to deal with regulatory constraints if it is small," he adds. "Banks now need to have a certain scale, otherwise they face difficulties, as we now see with smaller banks."
PLMJ partner Hugo Rosa Ferreira says the "continuing recovery" of Portuguese banks is creating plenty of opportunities for law firms "be it in recapitalization or quasi-capital raising transactions". He adds: "Also, the consolidation of the market looks to continue – some smaller banks continue to look for exit strategies and this is something that always brings a lot of work to law firms. With regard to Lusophone Africa, Veiga de Macedo says that there is "significant project investment" in Angola and Mozambique that is generating plenty of opportunities for lawyers.
Meanwhile, the increasing use of digital banking is also creating considerable regulatory work for law firms, lawyers say. Law firms´ banking practices used to be largely transaction-based, but now there is an increasing need for them to be more proficient in the regulatory aspects of banking. "Banks need considerable outside support [with regard to regulation] and this is an opportunity for law firms," one partner says.

Banking with Google?
With regard to the issue of fees, Veiga de Macedo says some clients that "recurrently work with international firms will prioritise quality rather than cost when selecting their lawyers". Lawyers also say that clients are less loyal to their legal advisers – one partner remarks that "substantial shareholder changes in banks mean there is often a reset in the client-lawyer relationship".
Banks cannot ignore the rise of the fintech sector, lawyers say; they also anticipate that companies like Google will have an ever-growing role in the banking sector. Such developments mean that banking lawyers have to become increasingly technologically minded, one partner says. "If you want to add value for clients, you have to have data protection knowledge," says one Lisbon managing partner. SPS Sociedade de Advogados partner Nédia da Fonseca Nunes says: "The investment in technology has played a crucial role in banking development, significantly changing the paradigm in the rendering of these services." However, despite the rise of the fintech sector, lawyers warn that the more traditional banks are not properly addressing this emerging threat at board level.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.