Battle Lines Drawn at A&O

Allen & Overy (A&O) banking lawyers sound like they’ve had enough. They’re not exactly about to declare UDI, but the level of frustration is palpable. After three years where they hoovered up the fees on Marconi and Drax, and where the global loans group alone consistently produced profits three and a half times those of their corporate brethren, they now want payback.

At a particularly fraught meeting in May, one partner is understood to have floated the idea that the firm should go back to first principles and refashion itself as a “Slaughter and May for finance”.

The corporate argument is that there’s more competition for M&A work than for finance, and the latter is much better paid, so quit nagging. This is only partly true. Every major City and US firm worth its salt is trying to get finance mandates, and half of them are lowballing. To A&O’s and Clifford Chance’s credit, their practices are so dominant and of such high quality that the barriers to entry are enormous. The banking partners’ irritation at subsidising corporate is compounded by the fact that they feel their colleagues aren’t willing to address the structural issue of being overpartnered.

The trouble is, corporate won’t countenance a cull. Instead, the M&A partners are propounding a system of somehow modifying the lockstep to take account of differentials. This isn’t good enough for the bankers, who argue that a more fundamental review of the business is needed.

There are tricky politics here for David Morley and Guy Beringer, who were reared in finance and corporate respectively. Management sources say the corporate department is getting its act together again, but that message appears to be entirely lost on the bankers. “It’s amateur hour in the corporate department” was one particularly trenchant comment. “It’s extremely difficult to develop a corporate client base that doesn’t exist” was another.

The odd thing is, A&O used to have a London private equity practice, but it seems to have been mysteriously mislaid. A&O’s most significant private equity deal closed in recent times was acting for 3i on the massively leveraged buyout of VNU. But that was led from the Netherlands, where A&O is the only game in town for sophisticated corporate work. Nor are A&O’s corporate lawyers on the Continent entirely confident that their success will ever be replicated in London.

The last thing A&O wants is the headhunters circling its finance rainmakers. So the December showdown will be crucial. Shame they can’t sell tickets.