The banking crash is still firms’ major source of activity but an oversupply of lawyers means graduates face an even tougher time as that work dries up
The crash of the Icelandic banks in 2008 has hung over the country’s economy ever since, deterring foreign investment and clogging up the court system with litigation.
Many thought that, five years on from the crash, work would have returned to something approaching normal, but this has not happened. The collapse continues to provide a hefty chunk of activity for Iceland’s law firms.
“We’re dealing with all sorts of cases but we’re still very much stuck in dealing with the consequences of the economic collapse,” says Jonsson & Hall partner Geir Gestsson.
“For lawyers in the corporate and securities department, and the banking and finance department, 75 per cent of the time is still directly or indirectly related to the banking crisis and the clean-up,” adds Lex partner Guðmundur Ingvi Sigurðsson.
“Companies are still working out their problems. It’s something we didn’t anticipate when it all started.”
Litigation continues to be the most active area, as cases for creditors of the collapsed banks continue to progress through the system. However, competition and bankruptcy law have also come into play, forcing firms to diversify into areas they focused on far less before the crash.
“Insolvency law has been quite a large sector over the past five years – it’s something we didn’t have a lot to do with before,” confirms Logos managing partner Helga Melkorka Óttarsdóttir.
Out of controls
Everyone would like the amount of M&A – and, in particular, foreign investment work – to pick up, but activity in these areas could be being limited by the currency controls put in place by the Icelandic Central Bank back in 2008 in an effort to stop the outflow of money from the jurisdiction. The controls worked, but lawyers say they are continuing to make life tricky for those wishing to invest in Icelandic businesses.
“It’s a good thing for a lawyer because of the amount of work needed to navigate the rules – they’re extremely complicated,” says Advel partner Ragnar Guðmunsson. “Pretty much every export transaction taking place now has to take this into account.”
There are suggestions that the controls will gradually be lifted, but this could take some time.
Meanwhile, there has at least been a pick-up in capital markets work for Icelandic companies. A number of new listings and equity issuances have taken place, and companies are also successfully issuing bonds.
“Lots of Icelanders with cash have nothing else to do with it but buy securities,” points out Sigurðsson.
Some firms are less exposed to the banking crisis than others. At Advel, for example, Guðmunsson says work has remained more “normal”, although the currency controls have had an effect.
“We’ve been growing steadily but surely for the past few years,” he says. “We probably didn’t ride the wave of collapse as much as some of the other firms. We stuck to our Icelandic customers mostly and kept the focus on providing diverse corporate services to our numerous big clients.”
Under the volcano
Despite this, the local legal market is changing in one key regard – the younger generation.
Although Iceland is a country of just over 320,000 people it now has more than 1,000 lawyers registered with the Icelandic Bar Association, Lögmannafélag Íslands. Of the country’s seven universities, four have law schools. This, say lawyers, is generating too many young lawyers.
“This is the first time in history there’s been unemployment among newly graduated lawyers,” says Sigurðsson.
Gestsson agrees. “Not everybody now gets a job, which is quite different from when I graduated 10 years ago,” he comments.
Lack of employment has forced many young lawyers to set up their own firms, despite the fact they have little or no practical experience. Some are concerned that a result of this will be a rise in malpractice claims or disaffected clients.
There is talk of consolidating some of the law schools to reduce the number of students, and lawyers are calling for more stringent bar exams. Also, the unique nature of Iceland’s legal system makes it hard for Icelanders to migrate elsewhere.
The future may be affected by the way business develops. Some fear the end of the banking crisis work will cause a mini-recession in the legal market.
“Since 2008 Iceland law firms have been busy,” says Gestsson. “You always need the help of lawyers in a depression. This is five years on and I thought it would be concluded in five years, but it’s not. When this great demand for the services of Icelandic lawyers decreases we’ll see a depression in the market.”
Others are a little more optimistic. Óttarsdóttir says the recently elected government has made positive noises and people are hoping the election will stabilise the economy.
“Most people are looking at it as a marathon rather than a sprint – there are definitely good signs,” concludes Sigurðsson.
Key figures: Iceland
Annual inflation: 3.8%
Life expectancy at birth: 82
Unemployment rate (Q1 2013): 5.8%
Source: World Bank, Statistics Iceland