George rescues Fannie and Freddie

A&O called in as mortgage giants are bailed out. The US government’s bailout of ­mortgage giants Fannie Mae and ­Freddie Mac sent shockwaves through Manhattan last week.

George rescues Fannie and Freddie

A&O called in as mortgage giants are bailed out.

The US government’s bailout of ­mortgage giants Fannie Mae and ­Freddie Mac sent shockwaves through Manhattan last week. The decision to take the two mortgage giants into ­conservatorship, or effectively to nationalise them, was the clearest ­indication yet of the severity of the ­credit crunch.

Predictably, some of New York’s finest firms queued up to secure the starring roles on the unfolding drama, with the likes of Wachtell ­Lipton Rosen & Katz advising the US Treasury, Cleary Gottlieb Steen & Hamilton advising Morgan Stanley and Sullivan & Cromwellchairman Rodgin Cohen advising Fannie Mae.

Other firms involved include Arnold & Porter, advising the Federal Housing Finance Agency, Covington & Burlingadvising the board of Freddie Mac (with Cahill Gordon & Reindel stepping up for the independent directors of Freddie Mac) and Cravath Swaine & Moore playing a similar role to Covington’s for Fannie Mae.

The only UK firm so far to win a major mandate on Fannie and ­Freddie is Allen & Overy(A&O). As reported by The Lawyer in the New York Email last Tuesday (9 September), A&O is advising longstanding client the International Swaps and Derivatives Association (ISDA) on its protocol for credit derivative trades involving Fannie Mae and Freddie Mac. Partner John Williams is understood to be taking the lead on the matter.

“The reality is that derivatives dealers have large credit markets positions sensitive to the Fannie Mae and Freddie Mac situation,” says A&O New York partner Doug Landy. “The credit derivatives market is large and has received much attention as a result of the recent financial crisis. Because of this the ISDA is constantly reviewing its documentation to make sure it works well in light of current events.”

Fannie Mae and Freddie Mac ­represent roughly three-quarters of all new US mortgages, the funds in which are closely tied to the ­derivatives market. Both businesses feature high volumes of credit ­derivative trades, all of which were threatened by the two companies’ potential collapse.

The ISDA’s standing as a global derivatives trade body gives it a ­critical role in dealing with the fallout from Fannie’s and Freddie’s conservatorship. As for A&O, its relationship with the ISDA dates back more than 20 years, primarily through US partner Dan Cunningham.

Last week’s dramatic developments put the magic circle firm in pole position to benefit from more documentation revision and ­analysis from the ISDA.
“Working ;on ;the ;ISDA’s ­documentation following the Fannie Mae and Freddie Mac conservatorship is a significant project, and it’s crucial that we get it right,” says Landy. “It’s been very exciting work thus far and will be fascinating to follow into the future.”

The ISDA is yet to announce the finished protocol for Fannie and Freddie credit derivatives trades. With more revisions expected on the horizon, A&O looks set to maintain a crucial role in the market during the Fannie and Freddie aftermath.

As for the broader market, the Fannie and Freddie takeover by a Republican administration, and the bailout of Bear Stearns before it, raises significant questions about any ;future ;US ;government ­intervention and the role of the state in the financial markets.

According to one legal market commentator, the events last week represent a real realignment of the public and private balance of power.

“There appears to be a growing notion of some organisations being too big to fail,” says legal market consultant Bruce MacEwen. “It’s been said that Bear Stearns wasn’t too big to fail, but was too ­interconnected to fail. With Fannie and Freddie, they’re both too big and too interconnected to fail.

“I’m afraid we’ll find ourselves in a world where an increasing number of organisations are ‘too big to fail’.”

Falconer gets the party started with new york debut

Gibson Dunn & Crutcher revved up its international ­dispute resolution practice last Tuesday (9 September) when it hosted a reception in New York aimed at formally launching the firm’s international arbitration group.
The glitzy event also served to showcase one of the firm’s newest arrivals – Lord Falconer of Thoroton.

Falconer, who joined Gibson Dunn in July this year as senior counsel, was making his first trip to New York since joining the firm. He told The Lawyer his ambition was to help Gibson’s disputes practice develop its international reach, adding: “I was also attracted by the opportunities I could see developing in the firm’s London office.”

The former Lord Chancellor revealed that the start of his career at his new firm had been delayed due to red tape.

“After the deal was done in principle I, as an ex-minister, had to consult the advisory committee on business appointments,” he said. “They approved it, but because it was the first time an ex-Lord Chancellor had had an appointment such as mine, they needed to consult the Lord Chief Justice and Ministry of Justice, all of whom approved. But as a result, understandably, the process took longer than other appointments.”

In the interim Falconer took three weeks’ holiday, meaning he started at Gibson Dunn last month and took his first working trip to the US last week.

As well as welcoming Falconer, the cocktail party also provided a platform for highlighting Gibson Dunn’s growing band of international arbitrators.

The diverse attendees

at the well-received and decidedly non-stuffy bash, which was held at the Audi Forum on Park Avenue, included competitors from rival firms together with the usual mix of lawyers, clients and journalists.

Gibson Dunn partner Larry Shore, who joined the firm in February this year from Herbert Smith, said the mix reflected the new group’s approach to arbitration.

“Being part of the international arbitration community means understanding and respecting all parties,” said Shore. “All elements of this community should be appreciated and we want all present when we have an event such as the one we just had, which introduced our new formal international arbitration practice group.”