The end of the beginning of the credit crunch?

Lawyers prepare for changing demands while
also looking to the future

A year on from the global sub-prime crisis, are we now through the worst of things?
What do you view as being the main impact of the crisis, and what changes are you
seeing in the immediate commercial and legal needs of clients?

'I am afraid that in Spain we are not yet through the worst.
We will see a wider impact both in terms of depth and spread.
In general, clients are much more attentive to risks and their
assessment.' José Marí­a Balañá, Lovells

Rafael González-Gallarza, Garrigues

'The consensus is that 2009 will fare worse than 2008 and
many people say 2010 will also be difficult. The main impact so
far is that banking finance is tighter and in some cases just
impossible, although this will not last long; loans will be there,
though more expensive.' Rafael González-Gallarza, Garrigues

Paulo Cí¢mara, Sérvulo & Associados

'It is difficult to ascertain if the crisis has already had its peak or
not. The main impact of the turbulence is reflected in large crossborder
M&A deals and new listings, which have clearly decreased
over the past year. Clients are also now more interested in
operations aiming at maximising internal efficiency inter alia
through corporate governance reshuffling or cash pooling.'
Paulo Cí¢mara, Sérvulo & Associados

João Magalhães Ramalho, PLMJ

'I believe that the key issue is not
whether we are through the
'worst of things but rather if the
'nightmare' is over. In my opinion
the answer is clearly negative.'
João Magalhães Ramalho, PLMJ

'I am not sure whether we
are now through the worst
of things, what I know is
that things are worse than
they were a year ago.'
David Arias, Pérez–Llorca

'The liquidity crisis seems not to be over
yet but the feeling is that Portuguese
entities and debt issuances are hanging
on reasonably, everybody is enduring the
hard times the market is crossing. Like
Portuguese navigators of the past, some
entities even manage to keep their
courses steady in rough waters.'
Pedro Casiano, Viera de Almeida

'So far as business sectors are concerned,
we are finding some caution and concern
by all lending institutions to forward
financing. Portuguese banks, however, are
less affected than other banks globally,
however, no one is immune from the
stock market and currency fluctuations.'
Manuel P. Barrocas, Barrocas Sarmento Neves

'In bearish times, clients needs change to structuring-related work but also to assignments arising out of new
takeover, merger and business opportunities as market players adjust to new realities. The turnaround of crises
starts at law firms.' João de Macedo Vitorino, Macedo Vitorino & Associados

How is your firm responding to these emerging requirements – what changes, if any, is your firm making to adapt
to the economic situation and the impact on clients?

Juan José Terraza, Ernst & Young

'We have revisited our service offering in
the insolvency department and have
adapted it to our client´s growing
demand of assistance in the area.'
Juan José Terraza, Ernst & Young

'We believe that our firm is prepared to face
the changes that the actual economic crisis is
bringing forward. Although we will give more
emphasis, in terms of recruitment, in the short
term, on the practice areas related to the
crisis.' Francisco Guijarro, Hammonds

Charles Coward, Urí­a Menéndez

'Individual partners and lawyers of course have to respond to the changing needs of clients
but the firm itself has not really needed to adopt an immediate solution to this situation.
Any preparation began long ago by developing and promoting lawyers that have broad
experience, general knowledge and skills that allow them to change areas of practice when
and if needed throughout their careers.' Charles Coward, Urí­a Menéndez

'Garrigues is a true full service firm and we are
well equipped to deal with all these needs. We have
been doing top class insolvency work and labour
redundancies for decades and we have many
partners who have lived through previous low
cycles.' Rafael González-Gallarza, Garrigues

'We have the flexibility and resources to increase our
focus on the more dynamic businesses when there is
need. Thus, although some practice areas have suffered
more than others from the current economic
environment, the firm is globally in very good shape.'
Ricardo Oliviera, PLMJ

El grupo de expertos de
Iberian Lawyer
considera que afirmar
que la economí­a
mundial ha pasado la
peor crisis financiera es
todaví­a prematuro. Sin
embargo, lo que sí­ es
seguro es que nos
aproximamos al
principio del fin de la
crisis, y los despachos a
los que pertenecen
nuestros expertos
tienen ahora que
adaptarse al cambio que
sufren las necesidades
jurí­dicas y de negocio
de sus clientes.

Any belief that the global financial markets were improving was doubtless lost with
the events on Wall Street in mid-September, say Iberian Lawyer's Group of Experts.
Fears over the collapse of Western banking and finance models may have proved
premature, but lawyers nonetheless believe that it will be some time before business
confidence truly returns.

The issue for law firms now therefore, they say, is how best to react to a stagnant local
economy and the inevitably changing needs of clients.

Iberia may have been less affected than some other European economies to the original
US sub-prime crisis, and the events on Wall Street, but Spain has already seen its own high
profile corporate collapses – following the bursting of the real estate bubble and of ongoing
liquidity issues.

It remains clear that events continue to unfold in a dramatic fashion, and many suggest
that the issues now facing both clients and law firms are different to even a few months ago.
'It is easy to say that we have not seen the worst of the crisis and that it is no longer a real
estate market related financial crisis. It is a crisis of confidence within the entire financial
system,' says João De Macedo Vitorino of Macedo Vitorino & Associados.

Such a development prompts some to suggest that it may be up to two years before
matters improve, and that the coming months will see law
firms increasingly called upon to help prevent, or at least
manage, the demise of clients.

'We think the downward economic cycle will continue
well into 2009 and the Spanish economy is likely to get
worse before it improves. We are seeing a reluctance from
certain international investors to enter the Spanish market in
the current climate, even outside the real estate sector,' says
the managing partner of one UK law firm in Madrid.
Francisco Prol at Prol & Asociados agrees that tough
times remain ahead, 'I get the impression that we still
cannot say that we have reached the bottom of the crisis.'

And if governments are worried by a potential loss of tax
revenue as economies shrink, the apparent trend towards
increased investigations and enforcements may have an
equally negative impact, say some.

'In general, small and medium sized enterprises are
being greatly affected by both the credit crunch and tax
collection blind action which may throw many to
bankruptcy. There are many immediate commercial and
legal measures required in this severe crisis but there is no
great room to help without one way or another aggravating
the government's deficit,' says Carlos de Sousa at Carlos de
Sousa e Brito Associados.

But while clients must prepare for the worst and hope
for the best, challenging times also bring opportunities,
emphasise many lawyers. Bright spots still remain in the
Iberian economy and among law firm practices.

Environmental, IP, public law and regulatory practices
continue to see strong levels of demand, as do labour,
litigation and arbitration practices. In addition firms report
an upturn in requests inevitably for restructuring and
refinancing advice, and looking to expand capabilities
accordingly, as well as for risk assessment, compliance and
due diligence assistance.

Some report the arrival of new types of investment
funds, specialising in acquiring distressed assets and debt,
and demanding increasing creativity from their legal
advisers. Across Iberia there is also continuing consolidation
activity within the energy and renewables, infrastructure
and now banking and insurance sectors.

'Portugal's biggest public savings bank – CGD – has
seen its rating levelled up and we therefore hope that this is
a sign that the economy is coping with the current crisis, but
it is nevertheless true that the crisis is around,' says Pedro
Casiano of Viera De Almeida.

Nonetheless, many believe that it is important for
lawyers to remain close to their clients and to provide
greater and more dedicated support as finance, structural
and employment issues take on more strategic significance.

'The lawyer, as a service provider, must emphasise his
proximity to the client who is likely now living a restless
life, and worried 24 hours a day. Continuous and very direct
contact between lawyer and client, beyond the formality
and solemnity of reports and opinions, is necessary to
accommodate all the business decisions to be taken in such
complex situations,' says Miquel Roca at Roca Junyent.

But in addition some lawyers are already, albeit
tentatively, beginning to look ahead and to be ready to react
to further changes in client demand as economies settle and
the transactional and finance markets once again pick up.

'I doubt that there is much in terms of positive steps that
any firm can take in the short run to adapt to the conditions
of an economic downturn. Firms that are in trouble can do
'damage control' by cutting non-essential costs and
reducing staff and hiring, but these are short term solutions
that will ultimately prove expensive in terms of future
development,' says Charles Coward, Urí­a Menéndez.

'Talent at all levels and in all positions is too scarce and too
difficult to attract and retain to justify a reversal or even a
slowdown on this front.'

While nobody believes that the end of the crisis affecting
Europe's economies is near, or that we are even at the
beginning of the end, we are perhaps, suggest some, at the
end of the beginning of the initial crisis. And waiting to see
what the future will bring.