Bankers say loan pricing is more competitive than ever, but when it comes to the legal expenses connected with loans, some corporate customers beg to differ.
"Fees are out of control," said Timothy Scully, managing director and assistant treasurer at Musicland Group Inc., Minnetonka, Minn.
"Banks choose the law firm, control the law firm, and we pay for it," Mr. Scully said in an interview at the Treasury Management Association convention in Atlanta last week. "For what we get out of it, I think that it's horrendously expensive."
John P.C. Duncan, a law partner at Jones, Day, Reavis & Pogue, Chicago, said credit amendments and private placements require "complicated and expensive layering" and the lender's legal counsel can account for up to half the borrower's negotiation expense.
Legal expenses range from $10,000 on a $1 million loan to "well over six figures" for more complex transactions, Mr. Duncan said in a telephone interview.
But banks say they are taking measures to reduce the legal fees in order to distinguish themselves in the marketplace.
Peter Gleysteen, managing director of Chase Securities Inc. - a unit of Chase Manhattan Corp., New York - said his company is working with its three law firms to standardize fee arrangements for loan covenants.
"We are just past the first trimester in the development of banking," Mr. Gleysteen said in a speech to the treasury association. "The landscape of banking has changed, and now the mechanics must also change."
Some treasurers say the answer is for corporations to negotiate legal fees just as they would loan fees. Otherwise, costs can "get out of control very quickly," said Thomas D. Logan, treasurer of Basic American Inc., a California food processor, who was elected chairman of the treasury association last week.
But Mr. Scully said this might be difficult. "If you can negotiate a good spread on the interest rate, you are going to pay for it in the fees," he said.
