Chosen few set to profit from Lehman and Merrill crash and burn
29 September 2008
18 November 2013
24 March 2014
19 December 2013
30 June 2014
14 October 2013
It took just over a year to hit, but when it did the results were spectacular. The reaction on Wall Street said it all – newspaper headlines hailed a ‘Wall of Fear’ and ‘Shock Market’, while television newscasters repeatedly referred to the earthquake that had hit New York’s financial district.
Even if the shockwave analogies are more than a little cliched, the wounds inflicted by the demise of investment banks Lehman Brothers and Merrill Lynch remain raw, so much so that veteran investor Warren Buffett has likened the situation in the financial markets to an “economic Pearl Harbour”.
But while a raft of firms will be affected by the loss of Lehman in particular, and the chastened finance sector more generally, for the foreseeable future vast sums of fees will be generated for a select group of law firms.
A glance at the column below shows the number of firms on both sides of the Atlantic that stand to benefit from the collapse of Lehman alone. When the work being done on propping up insurance giant AIG, converting Morgan Stanley and Goldman Sachs from investment banks into bank holding companies, and the acquisition of Merrill Lynch by Bank of America are taken into consideration, it is clear that law firms are enjoying a veritable feeding frenzy. The feast is certain to grow in the coming months.
Lauded for his skills and unparalleled market knowledge, Cohen has guided AIG through its recent woes and advised Goldman Sachs on its transformation from an investment bank into a holding company, allowing it to access Federal Reserve funds, while the market can take comfort from the greater level of regulation it will be subjected to. Earlier in the year Cohen acted for Fannie Mae on its government bailout.
While the impact of Lehman’s collapse has barely lessened in the past two weeks, it is clear that the initial shock has well and truly sunk in with the litigators gearing up for the next round of instructions.
Simmons & Simmons hedge fund client RAB Capital has kicked this off, launching a claim against Lehman’s UK administrator PricewaterhouseCoopers (PwC) to recover £50m of assets that were frozen when the bank went into administration. Financial litigation partner Robert Turner is leading and has instructed Simon Mortimore QC and Andreas Gledhill of 3-4 South Square. Linklaters partners John Turnbull and Euan Clarke are acting for PwC, instructing William Trower QC and Daniel Bayfield, also of 3-4 South Square.
The radical alteration seen in the investment banking sector over the past few weeks has been without precedent, but RAB’s action, which is expected to be copied by a number of other hedge funds in the coming weeks, is not.
Under advice from Nabarro partner Peter Fitzpatrick, RAB has lined up next to fellow hedge fund SRM Global to take action against the UK Government for the investment losses it sustained when Northern Rock was nationalised.
This time last year, when Northern Rock’s woes seemed like a big deal, nationalisation was viewed by many as the worst option possible. Now, with the Northern Rock situation paling in comparison to the US government’s action on AIG, Fannie Mae and Freddie Mac, nationalisation is the order of the day.
These are fascinating times
– particularly for the many tight-lipped lawyers close enough to the situation to know the true extent of what is going on.
While at this stage it is almost impossible to estimate what the total legal bill for the financial crisis will be, in many respects it is irrelevant. For the lawyers involved, even the most minor instruction ;will ;be ;career defining.