Disputes Yearbook 2021: Financial Disputes

• Published date: 07 May 2021
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Financial Services, Arbitration & Dispute Resolution
• Law Firm: Reynolds Porter Chamberlain
• Author: Mr Simon Hart

As part of the acclaimed Disputes Yearbook, Legal Business interviewed members of our disputes team exploring the litigation landscape and what RPC brings to the table.

To what extent is the current crisis similar to the 2008 financial crisis?

They are very different. Every economic crisis has different drivers, despite people tending to lump them together. The consequences for the legal market are always different as a result. Why? 2008 was a once-in-a-lifetime event, just like the pandemic, but of a different type. Undercapitalised banks themselves were one of the main causes of the crisis, they were right at the heart. The economy was on the precipice because the banks were so over-leveraged.

No-one is pointing at the banks this time around. The economic stress we are suffering is plainly due to the pandemic. The banks are in the mix, just because they are so fundamental to the global economy, they are one of the parties that provide the oil for the wheels of international trade and business. They are relevant, but not the cause.

Even if banks are not at the epicentre of the crisis, will the follow-on work for lawyers resemble the post-banking crisis period?

The reality is that the banks were so vilified after the financial crisis that they were very tolerant with their loan books. In reality, there was a sense that the banking sector understood the unspoken message from government that 'you've had our money, don't go kicking the legs out from under the economy.'

This time, the banks are not seen as the ogres on the block. I suspect they will take a much more robust approach to enforcing their rights and looking after their own interests than they did post 2008. That approach will generate its own disputes.

People tend to predict a rise in fraud after a financial crisis, do you expect to see that?

Completely. If the tide is always rising, you can mask all sorts of things, but as soon as asset prices decline, you're no longer able to pay people to maintain the merry-go-round. I have no doubt we'll see an uptick in fraud.

You can see the liquidity pressures beginning to rise in the economy, putting links in the chain under pressure. Let me give you a very recent example: A New York-based hedge fund office was unable to meet its margin calls last month, and therefore had to de-leverage very quickly. All the investment banks who lent them money were selling securities in large chunks which drove down the price of those securities. Whatever the cause...