Regulation remains front and center among the challenges facing banks. This reflects not only recent realities—the number of investigations and amount of fines levied on both sides of the Atlantic, as well as increasing scrutiny in Asia—but also a keen appreciation of the likely shape of future demands.
The financial services sector is also becoming increasingly crowded with a range of new competitors, both on- and offline, with offerings informed by a different understanding of consumer dynamics. For their clients, these newer players can often deliver lower cost and more efficient services——that are difficult for fuller-service providers to match. Moreover, they benefit from avoiding the regulatory challenges more established players often face, giving them greater flexibility to respond to today’s fast-changing markets.
Nonetheless, the sector was buoyed by an exceptionally active deal-making environment last year, and this year looks set to sustain that momentum—providing a chance to revisit the model and rethink the direction that offers the best chance of success. The aging demographic internationally also suggests that the asset management sector should continue to thrive, particularly as the newer entrants with lower cost bases begin to establish a credible market presence.
Looking at where the U.S. finance market is headed this year, where do you see the most significant opportunity for our clients?
While 2014’s strong demand for finance is likely to persist, the mix of lenders will change. Traditional banks are increasingly focused on complying with Fed/OCC guidelines on highly levered transactions and are less willing to participate in more aggressive transactions. This should create opportunities for unregulated or less regulated lenders to gain a greater share of the leveraged loan and high yield market as borrowers seek out a broader range of institutions to fulfill their financing needs.
What should be top of mind for all fund managers over the next 12 months?
Equity markets have performed extraordinarily well despite uneven economic growth and significant national debt. Nonetheless, fixed-income returns remain challenging at current interest rates, regulatory priorities appear fluid and uncertain, active portfolio management is being continuously challenged, and the ETF market is trying to find its voice as the better fund structure. How fund companies deal with these realities will determine their fate. Those with cogent plans may well prosper; those late to the game may not survive.
What are some of the most critical considerations for financial services companies to manage their litigation risk effectively in today’s environment?
The potential threat of litigation (including consumer actions, securities lawsuits, and shareholder derivative actions) relating to cybersecurity and data breaches—the subject of recent guidance by both FINRA and the New York State Department of Financial Services—has to be at the forefront of financial services companies’ considerations. It is essential not only to maintain robust cybersecurity procedures, but also to focus on the scope of related disclosures and internal reporting procedures.
What are the top challenges facing U.S. financial institutions in today’s regulatory environment— and how can our clients best manage them?
Today’s financial institutions face unique challenges: an increasing regulatory compliance burden aggressively enforced by federal and state regulators in a deeply competitive, rapidly evolving market. Financial institutions need a high level of expert compliance planning to balance the host of regulations that can significantly shape business transactional opportunities, and increase exposure to government prosecution and enforcement. At the same time, financial institutions clients will need both insightful and strategic regulatory advice as they confront a new generation of financial competitors.
In terms of tax planning and structuring, what issue should be top of mind for our financial services clients in the year ahead?
In light of ongoing U.S. and OECD efforts to deter expatriation, base erosion, and profit shifting, financial services firms will necessarily be focused on those tax reforms and their potential impact on global operations. In this environment, achieving streamlined global tax compliance and risk assessment systems may assist financial institutions in gaining a competitive edge. Increasing scrutiny of inbound financing structures designed to avoid U.S. tax nexus also merits renewed attention for noncommercial financing firms.
U.S. Lender Law Firm Bookrunner M&A
Source: Thomson Reuters’ LPC League Tables (based on number of deals)We represented Haitong International (BVI) Limited, a wholly-owned subsidiary of Haitong International Securities Group Limited, in its acquisition of Japaninvest Group PLC by means of a UK Scheme of Arrangement under Part 26 of the Companies Act 2006. Haitong is a leading securities company in China. This innovative deal marks the first UK Code takeover of a company listed on the Tokyo Stock Exchange by a Hong Kong listed entity, and involved our lawyers working with regulators in three jurisdictions and resolving complex issues that had never been considered before.
We advised joint bookrunners UBS Investment Bank, Citigroup, Barclays, BofA Merrill Lynch, Credit Agricole CIB, Credit Suisse, Deutsche Bank Securities, Goldman, Sachs & Co., J.P. Morgan, Morgan Stanley, RBC Capital Markets, and RBS on the issuance of US$2.6B of senior notes by AerCap Ireland Capital Limited and AerCap Global Aviation Trust to finance the US$5.4B acquisition of International Lease Finance Corporation by AerCap Holdings N.V., a leading aircraft leasing company, from American International Group. We also represented affiliates of the joint bookrunners in providing a US$2.75B bridge credit agreement to AerCap to support the acquisition.
We secured our third consecutive collateralized debt obligation (CDO) litigation victory for longtime client UBS. The case involved the resecuritization of certain junior notes of two synthetic CDOs. The plaintiffs insured the US$94M of notes issued in connection with the CDO, known as NS Repack. In the midst of the global financial crisis, as many of the underlying assets were deteriorating, the plaintiffs sued UBS, claiming they were fraudulently induced to issue their insurance policies and that UBS breached an alleged oral contract regarding its management of the “reference pools” of underlying assets. After winning dismissal of the fraud claim, we persuaded the trial court to stay further discovery on breach, causation, and damages, and permit UBS to move for summary judgment on the threshold issue of whether the parties entered into the alleged oral contract. The trial court granted summary judgment for UBS, and the plaintiffs appealed. The appellate court affirmed, agreeing with our argument that the plaintiffs could not overcome the contemporaneous documentary evidence, which overwhelmingly established that there was never any oral contract overriding the written transaction agreements.
We strengthened our longstanding relationship with Morgan Stanley in 2014, advising the global powerhouse on nearly 50 matters.
Highlights include advising on two offerings by energy company Dynegy, Inc. We represented Morgan Stanley among the representatives of the initial purchasers in Dynegy’s US$5.1B notes offering, the largest U.S. high-yield deal in 2014. We also advised the investment firm as one of the underwriters on Dynegy’s concurrent public offering of US$1.1B in common stock and convertible preferred stock.
Our finance team also represented Morgan Stanley as one of the joint lead arrangers in the financing for Apollo Global Management’s US$1.3B acquisition of CEC Entertainment, Inc., operator of Chuck E. Cheese restaurants. In addition, our real estate lawyers advised Morgan Stanley on nearly US$3B worth of deals involving office, retail, mixed-use buildings, hotels, malls, and multi-family properties—including a US$600M loan to finance the acquisition of New England’s Market Basket grocery store chain by one of that company’s founding partners.
In Asia, we represented Morgan Stanley as the sole placing agent, global coordinator, and bookrunner on Ping An Insurance Group Company of China, Ltd.’s US$4.75B private placement of new H-shares—the largest H-share placement ever. We also advised on the financing for IBC Capital Limited’s US$1.1B acquisition of Goodpack Limited, the global leader in steel shipping containers.
Finally, when Morgan Stanley sought to re-enter the unit investment trust (UIT) business, our lawyers were there. We advised on the creation and registration of the firm’s first UIT, Morgan Stanley Global Investment Solutions, Contrarian Candidates Portfolio Series I.