24 January 2011 | By Joanne Harris
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Joanne Harris explores the reasons why, despite the economic chaos in the country, Irish lawyers are still optimistic
Observers could be forgiven for expecting every tale to come out of Ireland at the moment to be one of doom and gloom. After all, that is the depiction in the mainstream media.
But where lawyers are involved, the picture is surprisingly cheerful. Despite the e85bn (£71.7bn) November 2010 bailout by the International Monetary Fund (IMF) and the EU, and the malaise of the Irish economy, legal business at least seems to be booming.
“The professions tend to be resilient in a downturn because there’s work to be done,” points out Eversheds O’Donnell Sweeney financial services partner Peter Fahy.
A&L Goodbody managing partner Julian Yarr is slightly more cautious in his assessment.
“It’s hard to say where the bailout’s going to take Ireland and the impact on the professional advisory community,” he says. “Certainly A&L Goodbody’s been active in the past 24 months. There’s stuff going on right now that’s a direct result of the IMF’s EU-led bailout, the impact of it and the recent legislation.”
Black and red
Ireland’s descent into crisis is a well-known tale. Until 2008 the country’s economy was booming. Prices for everything rose. But when the global recession hit the property bubble burst. Ireland was the first government to guarantee savings in its banks following the collapse of Lehman Brothers in September 2008.
In 2009 the government nationalised Anglo Irish Bank and announced cost-cutting measures, but these efforts were not enough. In summer 2010 the major ratings agencies downgraded Ireland’s credit rating. Despite repeated assertions by the prime minister Brian Cowen that the country needed no help, the IMF bailout became essential.
Under the terms of the deal Ireland has been given e45bn from the EU and European lenders and a loan of e22.5bn from the IMF. Irish cash reserves and liquid assets contributed e17.5bn.
The deal was approved by the Irish parliament, the Dáil, in mid-December. Just before Christmas the accompanying piece of legislation, the Credit Institutions (Stabilisation) Act 2010, was enacted.
The scope of the act makes it controversial. It applies to all the Irish banks and building societies that have received support from the state, including Anglo Irish, Allied Irish Banks, the Bank of Ireland, the Irish Nationwide Building Society and EBS Building Society.
Under the legislation the minister of finance, currently Brian Lenihan, is granted significant powers over institutions and their assets. The act also modifies the compliance requirements for institutions and expands the duties of directors.
McCann FitzGerald chairman John Cronin calls the act a “quite extraordinary piece of legislation”. Its enactment, coupled with the requirement of the bailout for Ireland’s banks to divest themselves of non-core assets, is likely to generate a decent amount of work for Ireland’s biggest firms in the next year or so.
Arthur Cox was perhaps the first winner, with managing partner Pádraig Ó Ríordáin appointed to advise the Irish government on the deal.
According to Ó Ríordáin 2010 was a “very busy year” for Arthur Cox, driven in large part by the flow of activity generated through its government work. He believes business across the board for all firms will continue to be good for the moment.
“When a patient’s in the emergency room there’s a lot of activity around the patient,” he points out. “As the patient gets better, things get quieter.”
“As the banks are charged with ensuring that urgent reforms are introduced, their customers and client base are automatically affected by that,” notes Mason Hayes & Curran managing partner Emer Gilvarry. “At the moment law firms are very busy with this, but it remains to be seen, once we have an austere banking system, how much work there’ll be over that time.”
At the moment the disposal of assets is just beginning. During December A&L advised on the sale of Bank of Ireland Asset Management to US-headquartered State Street, one of the world’s largest investment managers and fund servicing businesses. Other firms report instructions on upcoming, but currently confidential, transactions along similar lines.
There is also likely to be advisory work generated through the sale of state-owned assets as Ireland’s austerity measures kick in. The country has a four-year timeline to get its house in order, so lawyers are hopeful business will keep coming in.
Away from the core advisory work for the financial institutions themselves, Ireland’s smaller firms are also finding business from the bailout. At Byrne Wallace financial services head Aiden Small says the firm has received queries from bondholders, bank creditors and counterparties about the repercussions.
“People are just concerned what their rights are. There seem to have been a lot of moving targets,” Small says.
But there is some concern that the crisis in the wider eurozone will continue to have a negative effect on the international perception of Ireland.
“The reality for us as a country is that the radar now on Portugal, Spain, Italy and even Belgium gives us a déjà vu type of experience,” says Gilvarry. “For as long as bailouts happen in Europe in 2011, Ireland will be in the slipstream of media attention because we were the first.”
’Bad bank’, good work
Meanwhile, law firms, particularly those that built up large property practices during the boom years, are thankful for the stream of work deriving from Ireland’s ’bad bank’, the National Asset Management Agency (Nama). Nama was set up to acquire property development loans from banks in exchange for government bonds.
The deadline for the transfer of loans is the end of March. “As the vehicle charged with fixing everything, it’s busy at the moment,” notes Mason Hayes financial services partner Will Carmody.
The firm’s financial services head Christine O’Donovan agrees with her colleague.
“Because of the size of the project, pretty much every law firm’s been involved, instructed by one or more of the institutions,” she says.
Fahy says “an awful lot” of O’Donnell Sweeney’s property team is heavily involved with Nama-related activity. He agrees that Nama has been invaluable for property teams, keeping them afloat in what would otherwise have been a difficult period.
Up, up M&A
Aside from the disposal and restructuring work directly connected with the bailout, normal M&A activity appears to be rising. A recent study by McCann FitzGerald of transactions notified to the Irish Competition Authority in 2010 shows a 70 per cent rise compared with 2009. In total, 46 deals were notified to the authority during the year, a similar level to 2003, but only half the record of 98 in 2006. Deals involving media companies made up a fifth of all notifications.
Lawyers are hopeful things will continue to pick up. However, this relies on foreign investors being confident enough in Ireland to want to put money into the country.
“The one thing there’s agreement on is that we need to get our deficit in order and send a message to the international markets that we can manage our way out of this crisis,” says Michael Jackson, head of Matheson Ormsby Prentice’s asset management team.
Fahy agrees. “The indigenous businesses here are doing okay, but it’s all about cash generation and cashflow, it’s not about investment in the future.”
“There’s a significant amount of foreign investor interest in Irish assets and that was gaining pace in the last quarter of 2010,” says William Fry commercial property head Andrew Muckian. “When the bailout became inevitable a lot of potential investors adopted a ’wait and see’ approach. Now that the terms of the bailout are clear you’ll see a resumption of activity.”
A&L’s Yarr is confident that international investment is returning to Ireland.
“Everyone says M&A’s dead and that’s not something we find to be true,” he reveals. “Most of the activity we’re seeing there is coming from the international markets.”
Litigation and insolvency activity is also growing, although Fahy adds a caveat that “you need to know that your client has the money to fund the litigation”.
The crisis has made firms refocus their businesses and ensure proper diversification. Cost-cutting measures and lower fees are now also common across the board. Lateral hiring has become selective as a result.
Some firms are looking further afield for work. A&L, Arthur Cox, Byrne Wallace, Matheson Ormsby Prentice and William Fry already have offices in the US. William Fry announced it had hired business development staff for New York and the US West Coast in late December last year, while A&L is working to boost its New York presence.
Meanwhile, Arthur Cox moved Ailish Finnerty and Gary McSharry to be resident partners in its New York office, supported by a ’US group’ from Dublin. The pair will provide real-time advice to the firm’s US clients, many of which have recently relocated headquarters to Ireland.
Ó Ríordáin says the move is an expansion of the firm’s longstanding presence in New York - Arthur Cox opened a base in the city in 1981.
“We believe that in the medium to long term the US market will remain a core area for us,” says Ó Ríordáin. “It has been all along, but if you look at the multinational activity in Ireland there remains a very significant amount of US investment.”
Firms say provisional 2010 revenues appear to be up on 2009’s, boosted in particular by work at the end of last year. If bailout-associated work does eventuate 2011 should, in theory, be even stronger.
So, while Irish politicians wrestle with the country’s physical economy, its deficit and the austerity measures, lawyers are looking to the future with modest optimism. n