Freshfields gears up to target senior lenders
14 April 2003
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Now this is what you might call a belated move. After years of turning up its nose at straight lending work, Freshfields Bruckhaus Der-inger is about to make a push into banking - or so it says.
In fact, it has been Freshfields' stated aim for the last five years that it should be targeting lenders for senior debt work, but theory and practice are two very different things in a law firm. Straight banking work has never found favour with Freshfields partners, many of whom have historically regarded it as a rather grubby business.
Even up until a few months ago you could hear senior management at the firm argue that you simply cannot build a finance business in conjunction with a market-leading M&A practice. Simon Hall, head of global finance, has had to struggle against the dominance of the corporate department for years.
Hall admits that for Freshfields, M&A will always be king, but argues that there is room to develop banking in the way that Linklaters has managed. "It's been a corporate-led firm for as long as I've been here," he says. "But we've still built finance into the second-biggest practice."
However, the majority of that £150m-odd business is made up of asset finance, projects and structured finance, including securitisation. Unlike at Allen & Overy (A&O) or Clifford Chance, Freshfields has never had that central core of banking lawyers to drive the practice forward.
Hall himself is an asset finance specialist; London head of banking Edward Evans is, along with David Winfield, a classic borrowers' lawyer. Meanwhile, David Ereira, the firm's star finance partner, with more than a touch of the maverick about him, is more interested in restructuring and top-end real estate finance work than straightforward investment-grade lending.
Even a cursory look at Freshfields' recent deals underlines what a challenge the banking department faces in building up its lender work and how skewed the practice is towards borrowers. Its three biggest deals in recent times were all for corporates: it acted for ABB on the refinancing of its $1.5bn (£964.2m) credit facility; for Telewest on its £3.5bn restructuring and for Xstrata on the $1.4bn (£0.9bn) acquisition financing of Duiker Mining and Enex Resources from Glencore.
Hall says that the corporate practice has been both a strength and weakness. "Historically, our issue has been that we don't have enough banking partners," he admits. "When the corporate partners are at full tilt, the demands on the banking lawyers swamp them."
For years the mainstay of the banking practice was the Citibank relationship, much of it imported from Wilde Sapte with David Ereira. But it fell out with Citibank after suing the bank on Brunei (The Lawyer, 6 December 2000). Although a number of sources within Freshfields maintain that there is still a relationship, it is mainly centred on specialist products. Even if the firm creeps back into institutional favour, the difficulty for Freshfields is how it can reactivate a productive relationship with Citibank's syndications desk four years later, when so many bankers have moved on.
Neither does Freshfields have much hope of penetrating the likes of Barclays or RBS - two domestic relationships which underpin the A&O and CC finance machines.
Instead, Freshfields' best hope may lie in its relationships with Goldman Sachs, Credit Suisse First Boston (CSFB) and CIBC World Markets. Goldman Sachs, which is a house relationship for the firm, is a big fan of Ereira - the bank used him on the massive Ashanti restructuring, for example. But given Goldman's business, the most obvious growth area for Freshfields is in leveraged, rather than investment-grade, work.
Here Freshfields will have to hustle. If this is not exactly alien to its culture, it is certainly not the norm. "They never aggressively chase us for business," says one banker who has worked with the firm.
So Freshfields may have to rely on two younger partners who learned their trades elsewhere - Sean Pierce, formerly of Weil Gotshal & Manges and Clifford Chance, and Brian Gray, previously of Wilde Sapte. And to be fair, some bankers have already sensed a new energy about the firm's networking efforts. "I think they're starting to get more hungry for it," says one. "I think they've moved on - I've noticed a shift in their appetite."
Pierce and Gray may be adept at building relationships, but they nevertheless face tough competition. CIBC is famously canny about its use of lawyers and has a reputation for being tough on fees. And it likes to pick and choose; apart from Freshfields, it has used A&O, Lovells, Shearman & Sterling and White & Case in recent times.
Meanwhile, CSFB has a solid institutional relationship with Freshfields on M&A and equities work, but gives most of its leveraged work to Clifford Chance partner James Johnson, with Linklaters its second choice.
Of course, it is not all about London. Although it maintains a lead in asset finance and projects in Germany, Freshfields has fallen behind A&O, Clifford Chance, Hengeler Mueller and even Baker & McKenzie for acquisition finance work. Linklaters, too, has made a strong showing of late.
Indeed, just as the London practice may have to rely on Pierce and Gray to pull in work from lenders, the Frankfurt finance operation has become increasingly dependent on rising star Yorck Jetter. Jetter, a young partner who has just come back from a protracted posting to Moscow, has become instrumental in the Deutsche relationship.
More than anything else, Freshfields needs to get bigger. Unfortunately, it has been culturally averse to lateral hires, aside from Pierce, who joined from Weil Gotshal two years ago. Gray came in as a senior associate; so, too, did Ereira when he left his partnership at Wilde Sapte in 1990.
And here Freshfields really did miss a trick. Back in 1995 it nearly hired Maurice Allen from Clifford Chance, and in 1999 it could have taken James Johnson from Wilde Sapte. Both Allen and Johnson could have driven the banking group to where it wants to be. But then, their abrasiveness and marketing skills might have rocked the boat. After all, the Freshfields culture tends to prize the smooth over the rough.