Bankruptcy is this season's black

Forget corporate; it’s so last season. In New York, the place to be if you want to get hired is bankruptcy. Now you won’t sense this from walking around Manhattan. America may be on the brink of financial meltdown, but there’s no sign of that in the streets below Central Park.

Although the fallout from the credit crisis continued to make headlines last week (along with the indictment of Milberg Weiss class action stalwart Melvyn Weiss, the big legal market news in the city), around town the usual New York business of making as much money as possible continued non stop.

In Bryant Park, the site of one of New York Fashion Week’s big shows last week, the construction of the $1bn Bank of America Tower slowed not one jot because of the summer’s hysteria in the debt markets. When the building is completed in 2009, expect some of the city’s leading law firms to move in. For now, though, all there is to see by the freshly laid turf squeezed between the towers is ranks of men and women bashing their laptops and barking into phones. Slowdown? Not here.

But first impressions can be misleading. None of New York’s top lawyers is going to admit it, of course, but there’s a nervousness here. Major M&A is on hold. The promised restructuring wave hasn’t arrived. As the UK head of one global firm puts it, “We are in the eye of the storm.”

What happens next is, according to Weil Gotshal & Manges restructuring partner Harvey Miller, “the $60m question”.

“Three months ago if you asked someone what the effect of the sub-prime crisis would be they’d probably say, very contained and limited, no leakage”, says Miller. “The fact that it spread so international, that BNP closed two funds in Paris, the problems at Northern Rock, was a shock. The ability to contain the credit crunch wasn’t as strong as those so-called knowledgeable people thought.”

So New York’s law firms, like everybody else, are waiting to see whether the events of the summer will hit the real economy. Will there be a deeper recession that hits at the bricks and mortar underpinning the confidence not just of the markets but of the consumer? And if so, shouldn’t they be hiring to reflect the market change?

And as Weil’s Miller says, “It seems to me the situation is less under control than anyone thought.”

For the past five years US households have been net debtors, living above their means. They’ve been relying on the increasing value in their homes to fall back on. Now that’s disintegrated.

Last Thursday (20 September) the Bombay Corporation chain of furniture stores became the first of the retailers to file for Chapter 11. While in the house-building industry the situation is even worse. Several have huge inventory on their books.

But in New York the firms with the big litigation and bankruptcy groups, firms such as Weil, Paul Weiss, Milbank and O’Melveny are gearing up already. That could be via lateral hires (such as Vinson & Elkins’ hire of New York bankruptcy boutique Cronin & Vris last month), or it could be at the bottom. The September crop of associates may just have discovered that their services are more in demand in restructuring rather than in corporate.

Lawyers might not move the market, but the canny ones will be ready to jump when their clients ask them.