Lawyers predict competition to drive bank shake-ups

European Commission prompts bank restructurings with demands for comprehensive asset sales

City competition partners are predicting a surge in financial services work as banks handed state aid during the financial crisis move to bring themselves in line with European Commission (EC) demands for asset sales.

The EC last week approved a package of restructuring measures for Northern Rock, which will effectively see the bank split into two, with 'good' assets likely to be sold on.

Announcements from the Treasury about the future of both Lloyds and Royal Bank of Scotland were expected as Legal Week went to press, with both expected to create new banks from their existing branch networks and sell off assets (see story, below).

Commenting on the Northern Rock restructuring, Nabarro competition head Cyrus Mehta said: "This is a significant decision for the sector. The case is very much a test of the Commission's new approach to rescue and restructuring packages in the light of the financial crisis."

Norton Rose competition partner Michael Grenfell added: "What people may not have realised was that the rescue aid to the banks - which the Commission treated generously - was only temporary and the Commission expected a restructuring of the banks after an initial period of six months or a year. The Commission expects the banks to become leaner and fitter through business restructuring.

"Hard decisions must now be made and we are at the crunch point. There will be more of a demand for specialist advice to deal with this trickier phase."

Details of Northern Rock's restructuring, which was approved by the Commission, came only days after Dutch bank ING announced that it was to undergo a radical restructuring, splitting into two parts by dividing its banking and insurance operations. The bank has also launched a ‚Ǩ7.5bn (£6.7bn) rights issue as part of the restructuring in a bid to hand borrowed funds back to the Dutch Government.

Freshfields Bruckhaus Deringer is advising Northern Rock and Slaughter and May is acting for the Treasury. Both firms also worked on the bank's nationalisation in February last year.

Click here to join Legal Week's LinkedIn In-house lawyers group