Avoiding a problem before it happens is the key to successfully navigating the demands of the modern day banking sector, says João Lourenço
During his 25 years in the industry, the banking business has changed dramatically, says João Lourenço, General Counsel and Director of Litigation at Millennium BCP.
Back then, every Portuguese bank was trying to implement and develop mortgage loans because it was believed that a ‘mortgage’ was the Queen of guarantees and didn’t involve much risk, he says.
“Unfortunately, the financial crisis in the US began precisely in this area and has proved that this assumption was not accurate, and it has changed the face of the banking sector forever.”
Beginnings Lourenço’s career has, he says, been quite diverse. At the beginning he was an Assistant Professor at the Lisbon Law Faculty, before moving to practise Law in Macau, where he specialised in banking law, which he describes as a “wonderful and fascinating” experience. “Chinese clients are quite demanding and pragmatic when it comes to business. They always ask three basic questions: What chances do I have, how long does it take, and how much will it cost,” he explains, “and those are quite challenging for a lawyer to answer”.
Eight years later, one of his clients, Banco Pinto e Sotto Mayor (BPSM) – one of Portugal’s biggest banks at the time – invited him to join the management of its Legal Department in Portugal, which prompted his return home. Later on, BPSM was bought by the Champalimaud Group, and Lourenço became the Group’s General Counsel for their banking business, which included BPSM, Banco Totta & Açores and Crédito Predial Português. BPSM was subsequently taken over by Milliennium BCP.
Lourenço was also President of the Company Lawyers Institute of the Portuguese Bar Association between 2005 and 2008.
In and out Lourenço has what he describes as a “small but great” team of 16 lawyers and eight support staff. The Department deals with
two main areas: litigation and credit recovery through the courts. Most of this used to be outsourced, but he believes that, given the
nature of the banking business, it’s far better to have a strong in-house team.
Of course, he continues to outsource some litigation, namely labour and employment, commercial, criminal and regulatory.
Lourenço has three law firms that he has worked with for many years, mostly because they are extremely familiar with the Bank, its
structure and working methods, as well as with banking business and financial services.
He actively promotes a “cross fertilisation” between in-house and external lawyers through seminars and customised training sessions. “So in a way,” he says, “these law firms feel like they are almost ‘in-house’.”
He also retains several other law firms as and when the need arises for particularly specialised advice and expertise, selected on the basis of their technical and legal portfolios, track record, background and pricing. “We look for a greater depth of technical and legal expertise, commercial awareness, pragmatism and business-focused legal advice tailored to the Bank, personal involvement and availability, and, of course, costs sensitivity.”
The big four Due to the crisis, the Bank has had an enormous increase in its overdue credit portfolios, he says, which has brought a
significant increase in litigation. “The level of litigation is reaching surprising levels,” he says, “due to the conflicts and difficulties in the performance of contracts and obligations by companies and individuals, which, as a consequence, has led to a rise in insolvencies.”
They are therefore working on solving important litigations while avoiding problematic insolvencies, including trough re-schedulings with collateral reinforcements.
“Unfortunately,” he says, “I suspect that these will continue to be priorities for at least another four or five years.”
And because of the considerable changes in the financial markets, banking regulation has increased significantly over the past years, as has the level of legal risk. “This makes compliance and prevention such an essential part of our day-to-day work.”
His biggest legal challenges for the coming years, therefore, fall into four categories, he says. Regulatory and compliance risk, recovering non-performing credits portfolios, reducing unnecessary and costly dependence on legal outsourcing, and finally the operational imperative of getting ‘much more’ efficiency and results for ‘much less’ costs and resources.
Nowadays, he says, the banking sector requires much a deeper risk analysis and greater level of sophistication from its legal advisers. The modern demands of banking activity, he says, reinforce the importance of, and need for, preventative legal work, in particular in what he calls the ‘trilogy’.
“Giving advice tailored towards the business and the client, legal training and compliance legal risk management – these are the true
keys to survival.”