CC feels the NY sub-prime pinch
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4 November 2013
New York’s leading structured finance groups were braced for a round of layoffs last week after Clifford Chance let go six associates, as first reported on www.the lawyer.com (6 November).
Financial marketsUS firms look anxiously at CC's associate layoffs
New York's leading structured finance groups were braced for a round of layoffs last week after Clifford Chance let go six associates, as first reported on www.the lawyer.com (6 November).
In particular, those firms focused most sharply on residential mortgage-related financial products, such as collateralised debt obligations (CDOs), which were thought to be in the firing line.
As one New York partner put it: "It's logical to expect that a number of firms with major departments in areas such as CDOs and sub-prime-related products will experience a similar reduction in work to Clifford Chance. For most of these investments, the market's disappeared."
According to sources, the structured finance-driven McKee Nelson told its associates late last month that anyone who agreed to leave on or before 7 December would get a full-year bonus.
"If they left after 7 December then the bonus would be pro-rated against a 2,000-hour year, but no one's worked 2,000 hours," the source added. McKee Nelson's official line appears to be that it is not firing anyone, but if you are an associate you might want to start looking for another job.
Last month partner William Nelson admitted that the firm did not have enough work to keep all of its structured finance lawyers "fully busy", and so provided a range of options, which included moving into other areas of practice, going on secondment or taking a sabbatical.
The firm did not comment.
Over at another structured finance shop, Thacher Proffitt & Wood, the firm's managing partner Paul Tvetenstrand asserted that the firm was not making any layoffs. Tvetenstrand said the firm had other areas that were "relatively busy", including groups within structured finance, and had asked associates to shift their focus.
"It's certainly slow in the residential area, but there are other asset classes," added Tvetenstrand. "Litigation is very busy across the board. We're asking people to pitch in."
Tvetenstrand highlighted a shareholder derivative lawsuit filed last Wednesday (7 November) against Citigroup over losses related to the bank's sub-prime mortgage-backed securities portfolio as the kind of matter Thacher was currently targeting.
"We're not involved in that [case], but there are definitely opportunities there," added Tvetenstrand.
At Clifford Chance one finance partner, who preferred not to be named, said the redundancies, although regrettable, were among lawyers hired 12 months ago to do specific work that had now disappeared.
"They were working exclusively on Standard & Poor's work and that's dried up," said the partner. "It's unfortunate, but we did what needed to be done. We're a healthy firm doing well, but one area dried up overnight. That doesn't affect our underlying health."
The firm's regional managing partner for the Americas Craig Medwick echoed the sentiment. "These were lawyers hired during a boom time for a very specific role," he said. "It's similar to hiring contract attorneys brought in for a major litigation. If the case settles early, you're generally not expected to retain those lawyers."
As one New York partner put it: "This is the flip side of the high salaries. If a firm is paying $160,000 [£111,940] for an entry-level associate and the market they're in gets disrupted, it can't afford to pay them to sit around and do nothing."
The news of the redundancies at Clifford Chance came in the same week that it became the latest firm in New York to announce bonuses for its US associates. The awards, to be paid in January 2008, ranged from $35,000 (£16,650) for the class of 2006 to a $65,000 (£30,920) year-end bonus and special bonus of $50,000 (£23,780) for the class of 2000.
Age is no concern for K&L Gates' global chief
In typically rumbustious form, Kirkpatrick & Lockhart Preston Gates Ellis (K&L Gates) global managing partner Peter Kalis took advantage of his firm's decision to ditch its age-related policy on maintaining equity partner status to take a pop at his rivals.
"For Wall Street firms or magic circle firms, or any law firm with lockstep compensation, they have a different problem. But you know what? It's their problem, not mine," he said.
Kalis was referring to one of the reasons behind last Tuesday's (6 November) vote at K&L Gates that removed the requirement for partners to leave the equity once they reach 70.
Kalis said that age-based limitations on partner status, which directly related to compensation, were "anachronistic and irrational".
"We have merit-based compensation," he added. "We're perfectly capable of addressing the compensation of 40-year-old or 75-year-old partners. We don't need to draw an irrational line in the sand."
Kalis, who described himself as "an expert in one thing - the productivity of law firm partners", said that, as he looked across the profession, an increasing number of productive partners were older lawyers.
"If other law firms wish to have irrational retirement provisions we'd be happy to be a destination for productive older lawyers," he added. He said there were a number of law firm leaders in the US, including DLA Piper's Frank Burch and WilmerHale's Bill Perlstein, who were over 50 and so nearing the UK law firm retirement age.
"If we retired we'd all be out on the farm hanging around like a bunch of cows with no point in life," Kalis said. "These provisions [for mandatory retirement] are outside the main stream of enlightened thinking."
"We've been thinking about this for a long time and started acting on it in the second quarter of this year," said Kalis. "The unfavourable settlement at Sidley and the favourable decision for Freshfields both came after we'd decided to do this."
Kalis refused to divulge how many of his firm's partners would be immediately affected by the vote (which was 98 per cent in favour) or how many were at, or nearing, retirement age.
"I could make one call and get that number, but I prefer not to," he said. "It's not relevant. Large number or small, this is the right thing to do."
Richards butler Merger pays off for Reed Smith
Reed Smith will generate an additional $40m (£19.02m) in revenue this year on top of its merger with Richards Butler.
Michael Pollock, the Reed Smith partner who has been instrumental in overseeing the integration of the two firms, said Reed Smith was projecting an additional $40m worth of work at the end of its financial year in December that it would not have won without the merger.
"We're thrilled, but not surprised," added Pollock.
He said the extra revenue was spread throughout the firm, but broadly broke down into two-thirds from the UK and Europe and a third generated out of the US. He added that the tangible effects of the merger were clear within two days of the deal.
"Two days after the deal Bank of America called us and asked us if there was someone we could second to them in London," said Pollock. "The reality is the person we sent was there already, but the client wouldn't have thought of asking us before the merger."
Pollock also said that soon after the merger the general counsel of a Fortune 500 company (a Reed Smith client) called the firm to say he had seen the email about the Richards Butler deal.
"This client had an internal investigation in Greece and called us because, as he put it, he'd seen that we'd 'picked up an office in Greece', and could we help," recalled Pollock. "That has since turned into a multimillion-dollar instruction."
Pollock and other members of Reeds Smith's executive committee, including UK head Roger Parker and New York managing partner Bob Nicholas, were in New York last week in bullish mood. The firm moved into the 29th floor of its Lexington Avenue offices and has an option on a further two floors.
"As things stand we could double our size in New York more or less immediately," said Nicholas. "The commitment to the space and the build-out is a statement to our intent, seriousness and dedication."
In the line of fire
It's ironic that the redundancies in New York this week were at Clifford Chance, a UK-headquartered firm.
With employment laws in the US such as they are, US firms generally have an easier time of it when it comes to firing their lawyers.
I'm sure Clifford Chance will have followed every HR best practice procedure in the book. But it didn't have to. As Reed Smith chief HR officer Mike Lynch puts it: "US businesses are probably quicker to terminate people's employment in instances of underperformance than in the UK, where you have the whole procedure of warnings, reviews and consultation."
There's already a tonne of HR-related activity within heavyweight structured finance practices. Even if it's not yet reached outright redundancies, there's a lot of encouragement for well-timed sabbaticals.
- Posted: 9 November
On the retreat
It might be bonus season in New York, but it also appears to be time for the partnership retreat.
Reed Smith's management board members are in town, most likely quizzing each other over how to pinpoint the firm's next merger partner. Apparently the firm's appetite for growth in New York isn't exactly a secret internally. As one headhunter puts it : "Everybody knows that's what they're looking for, including the guy who serves coffee downstairs."
Latham & Watkins partners are heading to Arizona to figure out how the firm can carry on being everyone's most successful out-of-town firm.
The value of these events is debatable. Take Latham's bash. Any partner that doesn't have a business commitment is expected to be there, but on the other hand, if you don't show no one's going to know. Or, probably, care.
- Posted 7 November
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