Legal Market Overview
In the banking and finance space, the complexity of the German legal market in this segment offers law firms with different specialisations and orientations growth opportunities and continues to ensure a constant flow of clients. On the one hand, firms report a further increase in the density of regulations. The ongoing expansion of regulatory frameworks in the area of banking supervision, among others, creates a high need for advice. On the other hand, advancing digitalisation brings a steady volume of mandates in the areas of blockchain and crypto currencies. This benefits not only large law firms but also numerous boutiques, which can offer a more flexible cost structure. While major law firms in this segment generally provide advice to banks and other financial service providers on cooperation and partnership agreements with fintech companies or on strategic takeovers and other transactions, boutiques – especially those with a strong network in the start-up scene – often act for fintech companies and assist them with regulatory issues, in transactions and related TMT issues.
In addition, the more restrictive regulatory capital and liquidity requirements require a more diverse lending landscape, in which insurance companies, funds and shadow bank constructions are increasingly following in the footsteps of traditional banks, not least because alternative financers can usually offer more flexible terms. Debt funds are now a fixed component of many firms’ portfolios. By offering cheaper terms, debt funds have become more competitive, but take a significantly higher risk because they also invest in riskier companies that offer little credit security. This also applies to the real estate financing area, where numerous project developments were recently financed by debt funds, which thus rivalled the Pfandbrief banks.
These trends continue to be based on a low interest rate environment, which further intensifies investment pressure for investors. Classic investments are not very profitable and hence the demand for alternative investments is on the rise. In terms of legal advice, this requires a high degree of specialisation: firms’ respective teams place their varying focus on different asset classes such as real estate, private equity, infrastructure and renewable energies, on the one hand, and on different fund types, on the other hand. Moreover, due to the favourable regulatory environment, many financing solutions run through Luxembourg, and therefore cross-border work together with the firms’ respective Luxembourg offices or Germany-based teams focusing on Luxembourg fund structures have become a fixture for many firms. Here too, in addition to classic fund structuring matters, advice on the regulatory framework plays a central role, not least due to the reform of the investment taxation, which came into force in January 2018.
At the same time, firms’ financing law practices report a significant increase in restructurings with even more expected in the future, especially in the automotive and supplier industries, which are struggling with transformation difficulties.
Not surprisingly, the UK’s exit from the EU continued to be an issue, benefitting primarily banking and finance teams with cross-office and multi-jurisdictional capabilities. In contrast to 2017/2018 the focus of advice is no longer on headquarter relocations and business relocations (these had largely been concluded), but rather Brexit-related regulatory and capital market law issues, which remained on the agenda.