Editors' Blog

RBS in public hands - embracing the Bretton Woods mood

Posted 13/10/2008 by Alex Novarese

Writing immediately after the shock collapse of Lehman Brothers, Legal Week noted that law firms would have to get used to a world in which banks would look different and be policed in a much-changed regulatory and cultural environment.

Just a few weeks on, with the UK Government today (13 October) effectively taking ownership of Royal Bank of Scotland (RBS), it is clear how quickly City partners have adjusted to this very different reality.

Glancing at responses for this week’s Big Question survey, the overwhelming support from normally conservative lawyers for the kind of interventionist policies more familiar from the era of Bretton Woods and the New Deal is striking.

It is almost shocking for a journalist that has covered commercial lawyers for years to read comments from partners that would until very recently have looked more in keeping with hard left activism.

“It seems to me that the global financial system has been damaged by the modern equivalent of snake oil salesmen,” observed one partner.

Another makes a statement that would have been hard to imagine two weeks ago: “Thank God that Gordon Brown is at the helm right now. Cameron/Osborne would be completely out of their depth.” It gets better: “The suggestion that Brown presided over a decade of irresponsibility is risible: it was an all party consensus which allowed the credit boom. The directors of the Financial Services Authority are the ones who should be beaten publicly and painfully with a spiral-bound 200-page derivatives contract.”

Another partner calls for the need to “clip the wings” of the banks, while another welcomed state intervention the context of the Great Depression, arguing that “the point is to put the New Deal in place now, not three years after the event”.

It seems particularly symbolic to see the way that City lawyers have shifted with the anti-market mood of the nation on a day in which RBS fell into state hands.

Since emerging from its much-feted takeover of NatWest in 2002, the bank under Sir Fred Goodwin had arguably established itself as the single most coveted banking client in Europe, a position that last year looked to have been cemented with its acquisition of ABN Amro. Who could have predicted that its forced sale into state hands would turn out to receive enthusiastic backing from the legal profession?

The world, or at least, the business world, has truly changed. And even partners that have built much of their careers working with banks make no attempt to trot out the business as usual mantra. While some partners have reached for more descriptive language, for my money, Clifford Chance’s Tim Plews summed it up the best: “This is the beginning of a long haul for a new place for banks within the economy. The future will be different from the past.”

Keep abreast of all the latest post-Lehman developments in our Legal Week Wiki special.