The Lehman collapse: the banking sector analysed

For banking lawyers the world can be divided into two distinct eras; before Lehman Brothers collapsed and after.

Pre-Lehman, banking lawyers were keeping afloat with a reduced, yet adequate, deal flow during the first half of the 2008-09 financial year.

Post-Lehman’s global bankruptcy, the nature of much finance work has shifted dramatically, with leveraged buyouts and debt financing no longer representing the bulk of the work carried out by the top 15 UK banking practices.

In the UK, Linklaters’ appointment to the bankruptcy and restructuring mandate has transformed its team. London-based global restructuring head Tony Bugg led a global team advising PricewaterhouseCoopers as administrator of Lehman’s European business, with 200 lawyers working on the project, including a 20-strong team in the New York office.

Linklaters’ role boosted the finance practice hugely. With a £493m revenue, Linklaters has replaced Clifford Chance at the top of the finance revenue table.

“Lehman’s bankruptcy clearly took a lot of time and required a lot of work,” says Linklaters banking partner Nick Syson. “Restructuring has been the most critical part of our practice.”

Revenue per partner (RPP) in the finance team increased by 2 per cent last year from £2.53m to £2.6m.

In contrast, Clifford Chance could not even hang on to second place, edged out by just £1m by Allen & Overy (A&O).

A&O’s finance team has successfully maintained profitability throughout the downturn, with an RPP of £2.4m in a group that contributed around 45 per cent to the firm’s £1.091bn turnover.

“We were particularly strong in Europe last year,” says A&O global banking chairman Michael Duncan. “As well as restructuring we were still doing investment grade deals despite the downturn.”

Herbert Smith also had a good year, hiking revenue by 5 per cent from £40.5m to £42.6m. The group’s partner-count dropped from 29 to 27, with RPP up by 10 per cent from £1.39m to £1.55m.

Herbert Smith has added 10 lateral partners to the finance group in the last four years. The hires cover Islamic finance, structured finance and derivatives, general banking and restructuring.

“The growth last year was really a result of the work we did in recruiting and building up the global practice,” says Herbert Smith head of finance Jason Fox. “We’ve been very focused on expanding finance into our global offices.”

Herbert Smith won places on several panels last year, including Standard Chartered Bank and JPMorgan.

Lovells has also experienced a healthy revenue increase in its finance group, hiking turnover by more than 10 per cent from £95.8m to £106.2m. RPP jumped by 14 per cent from £1.4m to £1.6m.

One contributor to Lovells’ finance turnover increase was the restructuring of structured investment vehicles (SIV).

In July 2008 Lovells partners James Doyle and Matthew French (now at UBS) were drafted in to act for the Bank of New York on the restructuring of the Cheyne SIV.

Lovells also won lead roles on a number of other SIV restructurings. With that work now dwindling, Lovells’ finance team faces a challenge keeping revenue high throughout this year.

Over at Freshfields Bruckhaus Deringer, former White & Case partners Maurice Allen and Mike Goetz had barely been at the firm for a year before they left in August this year.

The duo was hired in 2008 to create the finance department that Freshfields had always wanted, but the pair barely had enough time to make their mark.

That said, the firm picked up a number of lucrative restructuring mandates last year, hiking the finance group’s revenue by 25 per cent from £205m to £257m.

Freshfields played a lead role advising on the Icelandic bank crisis in November 2008, advising Ernst & Young as Kaupthing’s administrator.

The firm also advised Ernst & Young on the administration of Heritable Bank, a UK subsidiary of Iceland’s Landsbanki.

“There was a lot of work on bank restructurings last year, with Northern Rock still active and the collapse of Bradford & Bingley and the Icelandic banks, particularly the Kaupthing administration,” says Freshfields global head of finance Alan Newton.

Restructuring partner Ken Baird, corporate partner Mark Trapnell and banking partner Neil Falconer also led a team advising on retailer Woolworths’ bankruptcy last year.

Most of the top 15 finance groups moved structured finance lawyers into their restructuring groups to deal with banking clients’ exposure to the Lehman collapse.

“Structured finance has seen a fair bit of activity lately,” says Clifford Chance global head of banking Mark Campbell. “Dealing with that for our banking clients has created a lot of work for them.”

Clifford Chance is now in third place after finance revenue dropped by 5 per cent from £496m to £472m last year.

Campbell says the slow upturn in restructuring after the recession hit is the reason for the slight dip in revenue. “During the last downturn restructuring surged quickly,” says Campbell. “It wasn’t the same this time. But after December restructuring work did pick up. We now have a large group of our leveraged team working in our restructuring group.”

In March Clifford Chance advised JPMorgan as agent to senior lenders on the restructuring of British Vita.

The disappearance of structured finance work contributed to Ashurst’s 25 per cent drop in finance revenue.

The firm’s core finance business suffered dramatically, with revenue dropping from £80.8m to £63.2m last year. RPP came in at £1.37m.

But restructuring head Mark Vickers remains positive. Last year Ashurst hired an 11-partner team from US structured finance boutique McKee Nelson to set up in New York and Washington DC. “That team has actually been quite busy,” says Vickers. “The team is working closely with the new team in the US, which we see as a great opportunity for us.”

In the UK Ashurst has put restructuring at the centre of its banking and finance capabilities. Also, earlier this year Vickers’ role changed from banking head to restructuring managing partner.

Since then the firm has made headway in building up its restructuring group, recruiting White & Case restructuring partner Dan Hamilton in August.

But bulking up its restructuring team may not be enough to replace all of the revenue the firm has lost.