What is Banking and Commercial Finance Practice?
In the classic movie "It's a Wonderful Life", Jimmy Stewart played George Bailey, the quintessential small town banker, a pillar of the community who bore the burden of running the local savings and loan. If George Bailey were to return to Bedford Falls today, he would likely find the local savings and loan had become part of a national conglomerate that offered numerous financial services beyond the parameters of what we typically think of as banking services.
The banking industry has undergone a wave of merger activity in recent years, with both small and large banks being acquired by national banks and financial services institutions. Banks have also dramatically expanded their services to include the sale of insurance and securities as part of a diversified financial services company. For example, the merger between Citibank and Traveler's Group to form Citigroup resulted in a banking and financial services business with separate business units providing traditional commercial lending as well as selling insurance and securities.
Banking lawyers provide legal services to the financial services industry. Businesses need capital to finance their commercial activities and acquisitions; banking lawyers represent lenders, participants, agents, and borrowers in these financial transactions. For example, a company in the fashion industry might need working capital to finance the cost of designing and developing a new line of clothing, or a company in the construction industry might need a line of credit to finance acquisition of raw materials and land for a housing development. In each of these financial transactions, the lender (a bank or other financial institution), the borrower (the company), and any other participants in the financing (e.g. the suppliers of the goods and materials or the real estate developer) typically would each have their interests represented by one or more banking lawyers.
Such transactions can be highly complex and include multistate or international interests as well as secured and unsecured creditors (secured creditors have rights in a security interest or form of collateral; unsecured creditors have no such special rights). In addition to financing working capital and fixed assets, banking lawyers are involved in refinancings, leveraged (or debt-based) acquisition, and recapitalization financings and tender offer financings, which involve offers for the purchase of the stock of a company as a means to acquire control.
Banking and commercial finance attorneys may become involved in restructuring troubled financings (often called "workouts"), planning bankruptcy buyouts (the sale or purchase of assets or loans in bankruptcy proceedings, and assisting either the debtor or the lender in connection with troubled acquisitions. Banking lawyers also assist their clients in assessing the many structures of financial transactions available, including highly specialized transactions which involve complex offers of cash and securities in exchange for the stock of the acquired company. Banking and commercial finance attorneys also become involved in securitizations, or offers of packages of mortgages or other debt obligations in a private or public securities offering .
Life as a Banking or Commercial Finance Lawyer
Where do banking and commercial finance lawyers work?
Banks and other financial institutions, whether trust companies, credit unions, or commercial finance companies, generally have in-house counsel as well as outside counsel who work for law firms. All lawyers who work for banks and commercial finance institutions must be aware of the stringent regulatory requirements to which their institutions are subject. However, a number of the lawyers who work as in-house counsel, as well as those who work as outside counsel, may be involved in a corporate practice that is similar to that of any corporation. These in-house corporate practice attorneys may advise the bank on employment issues, litigation, general business issues such as the management of subsidiaries, purchasing matters such as the purchasing of computer systems, or tax issues. Lawyers may also play other roles in banks, such as working as trust officers.
Many attorneys who specialize in banking and commercial finance work in law firms, often in large and mid-size firms with banking/commercial finance departments. There are also some "boutique" banking law firms in which all of the attorneys specialize in the banking field. Still other attorneys working in this field work for state and federal regulatory agencies, such as the Federal Reserve Bank or state commerce commissions.
Who are their clients and what types of cases do they work on?
Tina Taguchi is a banking and commercial lending attorney at Davis Polk & Wardwell in New York City. She works with a range of clients, including financial institutions such as JP Morgan, banks such as Chase and Banco Santander, and lenders such as Donaldson Lufkin & Jenrett. She also represents some borrowers, usually large corporations. "My work is transactional work," Tina explains. "I'm working on highly leveraged deals. Most often the borrowers are taking on a large debt—the sums often reach hundreds of millions or even billions of dollars."
Lisa Meyers works as a banking attorney at the law firm of Farris, War field & Kanaday in Nashville, Tennessee. "The clients I work with are primarily individual loan officers with large financial institutions," Lisa explains. "They seek advice on business deals and transactional work." Like many banking lawyers, Lisa works on deals. "Initially I meet with the client to discuss the terms of the deal, whether it be a loan or a real estate conveyance. Then I draft documents that mirror the terms of the deal as discussed in the initial client meeting. I send the documents to the opposing party and their lawyers for review and spend time with the opposing party's lawyers negotiating the terms of the deal. I revise documents, prepare closing documents, and handle the closing of the deal. The closing occurs when the two parties come together to finalize and sign documents.
A deal reaches its conclusion when I oversee the post-closing work and the transmittal of signed documents."
Commercial finance attorney Nick Ferro works at Heller Financial Inc., in Chicago, where he is the Vice President of Corporate Asset Quality. He was promoted to this position from his position as senior in-house counsel at Heller International, Heller Financial's parent corporation. Heller Financial lends money to businesses; Heller International oversees Heller's financial companies around the world. "'Corporate Asset Quality' is what some other companies call their 'workout' group," Neil explains. "Heller makes loans to such organizations as catalog retailers, heavy tool manufacturers, clothing manufacturers, restaurants, and oil and gas companies. When Heller makes loans that are underperforming, the Corporate Asset Quality group figures out what is going wrong at the borrower's company and how we can best accomplish getting the money we've loaned back. We consider the strategies for 'exiting' the loan. These exit strategies may include liquidation of collateral, whether it's the company's intellectual property, equipment, real estate, inventory, or accounts receivable. Which exit alternatives are best depend on what type of collateral is available and who the other parties are who may have invested in the company. My clients are essentially the business units of Heller from which the loans come and the loan officers of Heller with whom I consult.
"In this practice you have to know the 'game' of lending," continues Neil. "In other words, you have to know what the borrowing company can accomplish in bankruptcy court and what the company can do in terms of borrowing from places other than Heller Financial. Because the companies know the rules, it's a relatively easy game to play. All the parties involved typically know the boundaries and limits. We have an assumption in this business that everyone will act as economically rational beings, and, if they do, things tend to work out. And in fact about 98% ultimately act in a economically rational fashion." Neil says that the 2% who don't act rationally tend to be entrepreneurs or business owners who have a strong emotional stake in their business as well as a financial stake.
What daily activities are involved in banking and commercial finance practice?
Tina Taguchi, a partner at Davis Polk & Wardwell, says, "I spend a huge chunk of the day on the phone. I'm negotiating the terms of documents and helping the clients structure the deals. Usually I represent the lender, and that means I spend time talking with the lawyers representing the borrower. I also spend a great deal of time drafting legal documents on my computer," Tina explains. "Today, most of the negotiations involved in deal-making are done over the phone—which I'm on all day long—or via e-mail. As a result, I seldom need to travel."
Farris, Warfield & Kanady attorney Lisa Meyers tells us that she, too, spends much of her day counseling clients and conducting negotiations via the telephone or by e-mail. "There's really no typical day, but it's fair to say that most of my days involve spending time on the phone or in meetings with clients or in negotiations meetings. I'm also at my desk drafting and reviewing documents." As a partner in her firm, Lisa plays a role in firm management, as well. "I spend a significant amount of time on firm matters such as client development and management and departmental meetings," she explains.
Nick Ferro of Heller Financial reports that he spends a great deal of time in telephone negotiations, as well. "I'm on the phone or on conference calls or in meetings working on factors involved in our exit strategies. I may work out agreements with the borrowers, work on determining the costs involved in a liquidation, or spend time interviewing the managers of the borrowing company. I would say that about 50% of my discussions are with the borrowers, and the other 50% are with lawyers, accountants, auditors, and outside counsel." Neil's days also include drafting internal reports for Heller as well as letters and memos. "Heller is regulated by the Federal Reserve Bank, so we have a number of standards for internal evaluation," he explains. Neil's job involves frequent travel. "I usually do two or three day trips and one overnight trip per month," he says. "The trips often involve visiting the borrower. For example, if I'm visiting a catalog retailer, I go to the distribution center and actually meet the people who put the retailer's clothing into boxes for shipping. The travel is interesting because I meet a wide range of personalities. Every workout situation in which I'm involved involves its own cast of characters."
What do banking and commercial finance lawyers find rewarding about their practice?
The banking and commercial finance lawyers we talked to enjoy the collaborative nature involved in their work. "I enjoy the challenge of handling complex transactions to the satisfaction of both sides," says Lisa Meyers. Explains Tina Taguchi, "My work is non-confrontational because everyone has the same goal—completing the deal. I'm working with institutional decision-makers at a high level, and both the borrowers and the lenders have a great deal at stake. All the parties involved make efforts to be accommodating, as it's a good thing for everyone involved to get the deal done."
Nick Ferro says that his job at Heller Financial provides great intellectual challenges. "I like the challenge of taking what looks like a disaster, in which a lot of people are going to lose a lot of money, and turning the situation into one in which no one loses money or in which losses are dramatically minimized."
Neil also enjoys the creative nature of his work. "In my negotiations I have a lot of leeway to structure what will work for a particular client," he explains. "I then do an internal sales job, explaining to Heller why this is the best approach. Though we're working with large sums that may range from $5 million to $30 million, Heller allows me to be creative in my strategies. The executive vice-president or the credit officer of the borrowing company sees our creativity and ends up with a favorable impression of the company even though we are in an exit situation. It's a great creative challenge."
"Banking law is a good fit for me," says Tina Taguchi. "One of the reasons that it's a good fit is that I'm highly organized, and it's work that involves a lot of detail. I enjoy the coordination of activities and people involved in putting together deals. I have good administrative skills, and I get to use them to make the pieces of the deal come together at the right time." Another reason Tina says she enjoys banking law is the large percentage of women involved in the field. "I enjoy all the people I work with, but it's especially enjoyable to meet so many women who are clients and who are banking lawyers. They're a great group of people; there's a wonderful sense of collegiality. When I interview female candidates for summer associate positions, I tell them that the large number of women in the field of banking law is a real plus in terms of making this a rewarding practice area."
Tina says that another advantage of working in banking law is that the deals she works on have a limited time span, in contrast to litigation work, in which cases may last for years. "There's a lot of turnover in terms of the projects you're working on," she says. "Most of the deals close in six to eight weeks, or, at most, in six months. This means that you're always working on a new project with new people and a new set of relationships."
The Training and Skills Important to Banking and Commercial Finance Law
How do people enter the field of banking law or commercial finance law?
Attorneys who specialize in banking and commercial finance law may begin their legal careers with an eye toward business and finance work. Nick Ferro majored in finance and economics as an undergraduate, and after law school he clerked for a bankruptcy judge. "Clerking for a bankruptcy judge was the best job I ever had. It's such intellectual work. You have the opportunity to think about, discuss, and write about pure legal issues," he comments. The clerkship also helped him become familiar with the issues involved in commercial bankruptcies. Neil then practiced in the finance and reorganization department of a large Chicago law firm for four-and-a-half years before he was hired by Heller.
Other lawyers come to the field of banking and commercial finance in a more roundabout way. Tina Taguchi, who was a literature major as an undergraduate, worked as a summer associate at Davis Polk & Wardwell during law school. "As a summer associate at Davis Polk, you have the opportunity to work in as many different practice areas as you are interested in. My practice group, the banking and credit transactions group, tends to be an area that people either like immediately or don't like at all, as it involves a great deal of detail. I knew it was the right group for me, and I've been in the group since I joined the firm in 1991." Lisa Meyers became involved in banking law as a result of the firm's needs in the practice group. "I affirmatively chose to practice at Farris Warfield & Kanaday. When I joined the firm, the firm needed lawyers in this area, and that's how I came to practice in this field," she explains.
What skills are most important to banking and commercial finance lawyers?
- Negotiation skills are important to lawyers who specialize in banking and commercial lending law. "The ability to negotiate successfully is critical, as negotiation is a central part of your work," says Lisa Meyers.
- The ability to work with details is particularly important for lawyers specializing in this field. Lisa Meyers says, "The ability to pay close attention to details is one of the primary skills required of banking lawyers." "There are so many details involved in putting together a deal," adds Tina Taguchi. "To enjoy banking law, you need to enjoy working with details. If detail is not your thing, you won't enjoy this field and you'll find it difficult to be successful in it."
- The practice of banking and commercial finance law requires strong legal drafting skills. "When you're drafting contracts for these deals, they are contracts that the parties will be bound to for years, and you're likely to continue working with the parties on other matters. When you draft a document, you have to get it right, and that requires paying attention to all the details," says Tina Taguchi.
- A banking and commercial finance lawyer must also have good relationship-building skills. "In my work, I'm dealing with large institutional clients," says Tina Taguchi. "You want those clients to feel comfortable calling on you and relying on you. You want them to like you. You do a lot of deals with the same individuals, so the stronger the relationships you develop, the better. You try to learn how they like things done so that you can better anticipate their needs. You develop an intuitive sense of what is going to work for them and what isn't. Developing such relationships is a big part of my job."
- Good interpersonal communication skills increase a lawyer's likelihood of success in this field. Nick Ferro's exit strategy work requires him to deal with the owners or managers of companies under financial stress. "There's both money and ego at stake," he explains. "They can be egotistical and difficult to deal with. They are often wealthy graduates of the best schools, and they're in a defensive posture. It takes time to earn their respect." Neil says that being successful requires being comfortable forging relationships with difficult people.
- Practicing in this field requires good business sense. Says Tina Taguchi, "You intuitively need to know what it's important to get out of the deal. You have to be able to identify the terms of the deal that you must have and the ones on which you're willing to compromise. You also have to be practical. In your negotiations you need to invest your time wisely. You have to do a cost/benefit analysis, making sure that you spend your negotiating time on issues that are likely to arise, as opposed to spending it negotiating on things that theoretically could happen. This is a field in which you earn credibility for being practical." Nick Ferro adds, "You have to think practically and strategically and keep the ultimate goal of the transaction in mind. It's easy to get caught up in all the minutia."
- A knowledge of business can be helpful to those who plan to practice in banking and commercial transactions law. "In a job like mine, you have to be good at reading financial statements and understanding the numbers," says Nick Ferro. "The people who excel in this work often have accounting experience or experience in credit analysis."
What classes and law school experiences do banking and commercial finance lawyers recommend?
- Among the law school classes that can help you prepare for a career in banking and commercial finance law are business-related classes such as secured transactions, commercial transactions, bankruptcy, debtor/creditor rights, real estate, corporations, securities, negotiations, and Uniform Commercial Code [Uniform State Laws governing commercial transactions such as banking, securities, and sales of goods] classes. Says Tina Taguchi, "You have to read and know the Uniform Commercial Code. I have a copy in my office and refer to it constantly." Tinaalso recommends a class in legal drafting.
- "Undergraduate business classes in finance or accounting can be helpful," says Nick Ferro. In addition, most law schools offer an accounting for lawyers class.
- Those students who are interested in this field should gain practical experience by seeking summer associate positions with firms that have corporate law departments with banks or financial institutions as their clients. "The advantage of working at a large firm," explains Tiziana Tabucchi, "is that such firms have a number of banking clients and a sophisticated specialty in the area. There are some boutique firms that specialize in banking practice, as well, but such firms generally look for lawyers who have experience working in large firms." Many banks and government agencies also offer summer or school year internship experiences.
- Clinical work can help you develop your skills at working with clients. Find out what types of clinical opportunities your law school offers. Whether the clinic works with indigent clients, immigrants, or battered women, clinical experience allows you to do good while you learn client relations skills, advises Nick Ferro. "Because you're working on real cases, clinical work also helps you learn how to navigate the bureaucracies of the legal system," he adds.
- Working for a judge as a law clerk upon graduation or as a judicial extern while a law student can help you sharpen your writing skills and gain confidence in your ability to think strategically and to communicate with other lawyers. Says Nick Ferro, "There's no better training for practicing law than working as a judicial law clerk. You sharpen your legal analysis, you learn how to write, you see how people practice, and you watch other lawyers in action. You learn what makes a good lawyer, and you learn how to be persuasive both in speaking and in writing. In addition, you meet wonderful people through your relationship with the judge." Clerks tend to develop strong relationships with the judges for whom they clerk, and those connections last through the years. The relationship he developed with the judge for whom he clerked obviously means a lot to Neil. "I still keep up with Judge Barliant," Neil says with pride and affection. "Working for him was a great, great experience."
- Students interested in this field may want to consider working in a bank or financial institution while in college. "No matter how lowly the job," advises Tina Taguchi, "it's helpful to work at a bank. You learn how banks fund their loans, and you gain an understanding of the loan process and the banking industry."
- Engage in activities that can help you learn to inspire the confidence of others. "In banking practice it's important to inspire confidence in your clients. You're judged on your confidence by both clients and the law firm. Clients tend to like lawyers who seem very in charge of themselves and self-aware," comments Tina Taguchi, who is active in her firm's hiring process. You might choose to become a leader in a student organization, to participate in bar association activities, or to work as a judicial extern for a judge. Self-confidence, Tina explains, can help you find your own personal style of negotiating. "When you're negotiating, it's important to stay true to your personality. I'm a pretty casual person. I couldn't replicate someone else's authoritative or formal style. If you're self-confident, you'll feel comfortable with your own style."
- "Keep up with the latest developments in banking and finance by reading the Wall Street Journal" suggests Tina Taguchi. "Everyone in the financial markets reads it, always, always, always. The Journal constantly writes about clients, and you want to be sure that you've read what the Wall Street Journal says before you get on the phone to your client." Tina notes that the Journal also does an excellent job of explaining the complex transactions involved in the field, and that law students can learn a great deal about banking law by following the Journal daily. "Keeping up with the New York Times is also advisable," Tina recommends.
