Click or swipe to read our partners’ perspectives on:
- Regulation
- Finance
- Securities Litigation
- White-Collar Crime
- Investment Management
- The JOBS Act
REGULATION
With U.S. bank regulation becoming so complex, do you see new players emerging? What will happen to existing financial institutions?
Gerard Comizio
Washington, DC
We are entering an exciting new period in the history of banking where we need to understand — and anticipate — the legal needs of an evolving financial services industry. Moving from a paradigm of traditional banking composed primarily of deposit and lending services, banking organizations now seek to meet highly competitive and profitability challenges by deriving an increasing portion of their income from a broad menu of financial products and services. In today’s regulatory climate, as banks grapple with significant new regulatory challenges posed by the landmark Dodd-Frank Act, these activities raise unique and complex regulatory and consumer compliance issues. At the same time, banks face formidable new competition from major commercial and retail companies. These companies — many household name brands — are seeking ways to build on existing customer relationships by entering the financial services market. Backed by a highly competitive pricing structure and strong customer loyalty, these companies increasingly offer bank-type products and services ranging from credit, debit, mortgage, and consumer lending to mobile and “tap” payment technologies. In this new context, these products present cutting-edge regulatory and consumer compliance issues that call for innovative legal solutions.
Kevin Petrasic
Washington, DC
The complexity of U.S. bank regulation has done little to dissuade new players. We continue to see a spate of emerging players and technologies shaping the financial sector on a daily basis. It is no longer the norm that first-adopters are start-ups trying to establish credibility in the market; we are seeing well-established companies going far out on the risk curve to implement new and innovative financial products and services. Some innovators are institutions that have been in place for decades and others are companies that have been operating for a few years or months. The result is that new players are competing virtually head-to-head with long-established financial firms. This creates unique challenges and opportunities for financial services lawyers to adopt, adapt, and innovate. Like the firms we advise, we have to compete continually to expand how we think about the law and how it applies to new products and services.
Next, read about Finance
FINANCE
Where is the U.S. finance market heading in 2013? How will deals get done?
Richard Farley
New York
The U.S. leveraged finance markets started strong in 2013, sustained by historically low interest rates driving refinancings and repricings. We are also seeing an uptick in acquisition financings, including very large leveraged buyouts such as Dell and Heinz. As macro-economic conditions continue to improve, and with companies and private equity holding large amounts of investable cash, 2013 should see increasingly robust M&A financing. Conditions remain equally strong in both the syndicated loan and high-yield bond markets, with borrowers and issuers continuing to hold leverage over terms with lenders. The yields on non-investment grade debt have made it an attractive asset class when compared to other debt products. Strong equity market performance has also had a positive effect on this market, particularly for M&A.
Areas of concern remain, of course — an increase in interest rates, if significant, would adversely affect deal activity, as could ongoing budget crises at the U.S. federal, state, and municipal levels, a worsening of Europe’s woes, or a significant China/Asia slowdown. Nevertheless, we enter 2013 with as positive an outlook for the leveraged finance markets as we’ve seen since the 2008 financial crisis and with a better mix of transactions.
Jennifer Yount
Los Angeles
Asset-based lenders began 2012 concerned about limited M&A and financing prospects. Yet while total 2012 ABL issuance was down year over year, at US$80B, it was the second highest on record. Market issuers and private equity sponsors successfully negotiated deal structures that included smaller lender groups, thinner spreads, elimination of flex, and covenant-lite revolvers. Lenders struggled to secure new loans and retain usage levels, especially in bank/ bond deals.
2013 will see continued or modest growth with similar terms. With the economy slowly improving, historic low interest rates, a strong debt market, and more reasonable valuations, the current climate is ripe for increased M&A. Many businesses have been reserving cash and private equity firms have unutilized commitments. As the start of 2013 showed, M&A deals are getting larger and we will continue to see the benefit of an ABL product coupled with bond debt in the leveraged finance market. We also have the pressure of domestic lenders looking outside the United States for new deals, new markets, new geographies, brand building, and higher profits. Asset-based lenders are sure to benefit from both this increase in M&A and the global expansion of ABL during 2013.
Next, read about Securities Litigation
SECURITIES LITIGATION
From CMBS to auction rate securities to CDOs, what impact does previous litigation have on the direction of future securities litigation? What issues are clients likely to face next?
Barry Sher
New York
Government agencies and private litigants have brought a steady stream of fraud and contract cases against an array of financial institutions since the onset of the global credit crisis. Those cases largely have focused on derivatives such as auction rate securities (ARS), mortgage-backed securities (MBS), and collateralized debt obligations (CDOs). We have had significant success explaining to courts, on behalf of our financial institution clients, that sophisticated investors to whom the material facts were disclosed are not entitled to shift responsibility for market losses to their counterparties. Cases that have survived dismissal, however, are reporting large settlements or heading towards trial. As evidenced by the recent wave of LIBOR lawsuits, there is no foreseeable letup in the cases being brought by prosecutors, regulators, and investors, and if there is a measurable increase in adverse judgments, the numbers will almost certainly multiply.
Next, read about White-Collar Crime
WHITE-COLLAR CRIME
How has the economic climate affected white-collar crime? Are you seeing new areas of concern?
Kenneth Breen
New York
Thomas Zaccaro
Los Angeles
The global financial crisis of 2007-2008 ushered in an unprecedented wave of white-collar criminal and regulatory enforcement investigations. In reaction to the public’s demand that those responsible for the crisis be punished, and spurred on by new enforcement tools created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, prosecutors and regulators cast a wide investigative net, which included industry-wide investigations into banks, investment advisors, credit rating agencies, mortgage originators and brokers, and real estate investment companies. While these initiatives have led to some notable cases, many companies and individuals with no responsibility for the crisis, and which engaged in no culpable conduct, have been forced to endure costly and distracting investigations. In many such situations, news of the investigations leaked to the media prior to resolution, causing unnecessary reputational damage that is difficult to repair. It is concerning that, six years after the start of the crisis, prosecutors and regulators have still not reverted to the more measured and focused pre-crisis approach to investigations, which may or may not happen in the near term. Meanwhile, companies and individuals have no choice but to defend themselves.
Next, read about Investment Management
INVESTMENT MANAGEMENT
How will investment management evolve over the next 12 months? What role will regulation play in this?
Michael Rosella
New York
Like all sectors of the economy, the investment management industry continues to search for economic certainty and stability. While there are some indicators that progress is being made, the industry is proceeding cautiously and business plans are reflective of that mood. Firms are beginning to broaden their product lines with strategic fund offerings and investment management products. Simultaneously, however, they continue to rationalize existing products and focus on market share. Changing leadership at the SEC may create new regulatory challenges. It appears certain that this year will bring significant money market fund reform and an increased scrutiny on the cost of fund distribution. We are working actively with our clients on the various legal and business issues pertaining to these challenges. These include development of new products and funds, as well as global fund offerings and product rationalization and reorganization. We are also supporting our clients in creating strategic alliances domestically and internationally, providing advice on acquisitions and sales of funds and business lines, and providing regulatory and litigation support as needed.
Next, read about The JOBS Act
THE JOBS ACT
How effective is the JOBS Act in meeting the objectives set for it? What are the next steps in its development?
Michael Zuppone
New York
The JOBS Act was enacted to support the efforts of startup and emerging growth companies to raise investment capital to fuel their growth and, as a byproduct, create jobs. The Title I IPO on-ramp reforms were immediately embraced as they reduced disclosure and provided other regulatory relief for eligible companies. Investment banks are still wrestling with whether to permit “test-the-waters” communications and “pre-deal” security analyst research. Title II requires the SEC to eliminate the prohibition on general solicitation in Regulation D private offerings sold to accredited investors, something long advocated by market participants. The Title III crowdfunding reforms garnered the most attention. They enable innovators to enter the capital market and radically change how small, community-scale, or early stage companies raise capital. Crowdfunding and the Regulation D reforms will permit public online offerings through social networking technologies, potentially creating a whole new asset class for venture investment and democratizing an area from which ordinary investors were often excluded. Observers anticipate that Congress will raise the US$1M limit once the market evolves and policymakers gain comfort with the process. Based on SEC statements, implementation of Title II and Title III is expected in 2013 and 2014, respectively.
