With the recent demise of so many financial institutions, Margaret Taylor takes a look at the firms that have benefited from the ensuing flood of work
When a major investment bank collapses, taking most of the banking sector with it and leaving a trail of economic detritus in its wake, it can only mean one thing: shedloads of work for lawyers. So when September 2008 witnessed the demise of Lehman Brothers and the sales of Merrill Lynch, Wachovia and Washington Mutual, as well as the bailout of insurance giant AIG, there were so many mandates up for grabs that they could have been divided between at least 50 firms.
This being highly complex work, though, the bulk of the instructions went to a select group, with the City’s finest lining up alongside the Manhattan elite in a bid to quite literally put the world to rights. Members of The Lawyer’s Sweet Sixteen featured prominently.
The demise of Lehman was hugely significant. While banks had collapsed before – in March 2008 Wachtell Lipton Rosen & Katz partners Edward Herlihy and Nicholas Demmo advised JPMorgan on its rescue buyout of Bear Stearns, which was advised by Skadden Arps Slate Meagher & Flom partner Peter Atkins – none had been on the scale of Lehman.
In the US Weil Gotshal & Manges partner Harvey Miller advised the bank on its Chapter 11 filing and the subsequent disposal of assets in the US and Europe, an instruction the firm believes it could carry out only because of the transatlantic nature of its practice.
“Lehman has been a major client of the firm for decades and it was the depth of this relationship firm-wide that helped us to react quickly to its changing situation in autumn last year,” says one Weil partner.
Weil’s combined US/UK team coordinated all aspects of the restructuring, including finalising negotiations and sales in a difficult economic climate, as well as the logistics of Chapter 11 proceedings across multiple jurisdictions.
The crisis begins
As we illustrate below, there was an abundance of work for firms on both sides of the Atlantic from the collapse of that bank alone. But in the immediate aftermath of Lehman’s collapse there were plenty of other financial institutions looking for advice – Fannie Mae and Freddie Mac were both nationalised, Morgan Stanley and Goldman Sachs were converted from investment banks into bank holding companies, and Bank of America (BoA) acquired Merrill. And that was just the beginning.
Throughout the crisis, while firms such as Cravath Swaine & Moore, Davis Polk & Wardwell, Linklaters and Shearman & Sterling appeared on numerous deals, three names in particular stood out for their ubiquity: Wachtell’s Herlihy, Simpson Thacher & Bartlett’s Lee Meyerson and, of course, Sullivan & Cromwell’s Rodge Cohen.
Lauded for his skills and unparalleled market knowledge, Cohen’s banking-crisis credentials are enough to make the competition weep. Prior to the collapse of Lehman, he advised Fannie Mae when the US government took control of it and Freddie Mac. The deal was a sign of things to come, not only setting the tone of the direction the economy was headed, but marking out the firms that would appear again and again in the months to come.
Cravath partner Robert Joffe advised Fannie Mae’s independent directors while Freddie Mac turned to Davis Polk partner Randall Guynn. Herlihy scored his next major instruction, advising the US government.
Sullivan’s next piece of work came when Cohen was retained by AIG, which needed guidance through a series of woes that ended up with the insurer being bailed out by the government. AIG also received advice from a Weil team that included partners Marcia Goldstein and Michael Aiello, while the US Treasury and the New York Federal Bank turned to Davis Polk partners Bradley Smith and Marshall Huebner.
While all this was going on, Cohen still found time to advise Goldman Sachs on its transformation from an investment bank into a holding company. Sullivan won another Goldman mandate when relationship partner John Mead gave the bank advice on a $5bn (£3.42bn) cash injection from veteran investor Warren Buffett, who turned to Munger Tolles & Olsen.
Further bank disasters saw Sullivan’s Cohen guide JPMorgan though its acquisition of Washington Mutual, which was advised by Simpson Thacher’s Meyerson, and advised Wachovia on its own sale. Cohen also advised Japanese bank Mitsubishi UF J Financial Group when it injected billions of dollars into Morgan Stanley, which turned to Wachtell’s Herlihy.
Aside from Lehman, whose global reach meant UK as well as US firms were handed leading instructions, the first flurry of credit-crunch related deals went mainly to New York-based firms.
BoA’s takeover of Merrill gifted a role to Linklaters, though, with corporate partner Olivia McKendrick advising the former on the non-US aspects of the deal. Shearman partner John Madden led a team advising on the US side of the transaction while Herlihy was on the team acting for BoA.
When the crisis got to the stage that the US government had to step in, Simpson Thacher’s Meyerson won a beauty parade to advise on the $700bn (£478.39bn) financial markets bailout package.
The UK angle
In the UK a similar scheme saw the Government’s trusted adviser Slaughter and May step up to the plate, with partner Nigel Boardman and Nilufer von Bismarck leading the advice. Davis Polk, a member of Slaughters’ best-friends network, advised the Government on the US aspects of the bailout. Davis Polk London partner Jeffrey Oakes and New York partner Arthur Long led the advice.
The Government’s £50bn bank rescue scheme gifted roles to a raft of City firms, with Linklaters banking head, Robert Elliott, advising Royal Bank of Scotland (RBS) and relationship partner Jeremy Parr acting for Lloyds TSB in relation to the scheme.
HBOS called on Allen & Overy (A&O) head of financial institutions Alistair Asher. He and Parr were both instructed when Lloyds began merger talks with HBOS in September 2008, with the two banks expected at that time to be the main recipients of the £50bn fund. In reality, take-up of the scheme was limited (CHK) and the Government had to part nationalise RBS and Bradford & Bingley (B&B).
Freshfields Bruckhaus Deringer advised the Bank of England on the bailout plan, led by corporate partners Michael Raffan and Karen Fountain, and also acted for the bank on a separate liquidity scheme that would see the Government offer short-term loans of up to a total of £200bn in a bid to encourage banks to start lending to each other.
When it was B&B’s turn to be rescued in September, Ashurst, Herbert Smith and Slaughters won the key mandates. After a weekend of emergency talks, it was decided that Spanish bank Santander would take over B&B’s savings business and branches, while the £50bn lending business was nationalised. Herbert Smith corporate head Michael Walter advised B&B, with corporate partners Will Pearce and Adam Levitt and restructuring partners Kevin Pullen and Laurence Elliott. Santander called on Ashurst senior partner Charlie Geffen along with corporate partner James Perry and commercial partner Clive Tucker. Slaughters partner Charles Randell advised the Government.
In January 2009 Slaughters’ Randell again took the lead role advising the Treasury on the Government’s bailout of RBS and establishment of the £50bn asset protection programme.
Freshfields acted for the Bank of England with financial services partner Michael Raffan leading a team for the firm. Senior partner Guy Morton, head of finance Alan Newton, antitrust partner Andrew Renshaw and corporate partner Mac Mackenzie were also involved.
Away from the UK and US, the impact of the global credit crisis in Iceland led to further instructions for City and New York firms (see box, below), while the effects of several months’ bad news in the financial sector inevitably led to business failures across the markets (see box, below).
While there has been a recent lull in the speed at which businesses were running into danger, there will almost certainly be a wave of restructuring work still to come. For the firms that have had high-level involvement in the crises that have ensued, so far the potential for winning instructions on that work is good. The world has been an uncertain place in the months since Lehman collapsed, but for the lawyers involved in mopping up the mess that followed, the work has been career-defining.
WHO’S WHO IN THE LEHMAN DRAMA
UK lead roles
Linklaters head of restructuring and insolvency Tony Bugg, restructuring partner Richard Holden and corporate partners David Ereira and Matthew Middleditch led the team representing Lehman Brothers’ European administrator PricewaterhouseCoopers (PwC). Linklaters fielded a 20-partner team on the administration.
UK supporting players
Barclays on the acquisition of parts of Lehman’s US businesses.
Japanese bank Nomura, which bought Lehman’s Asian business, was advised by Skadden Arps Slate Meagher & Flom and Freshfields Bruckhaus Deringer. The Skadden team was led by corporate co-head Nicholas Norris and included London restructuring partner Lynn Hiestand, while the Freshfields team included London corporate partners Stephen Hewes, Mark Kalderon and Stephen Revell. A Freshfields restructuring team was drafted in by the Bank of England to advise on the UK regulatory aspects of Lehman’s administration.
Lehman panel firm Ashurst advised finance house CarVal Investors on a £100m emergency loan so the London staff of Lehman got paid at the end of September 2008. Corporate head Adrian Clark also advised the collapsed bank on the sale of its European operations.
Simmons & Simmons financial litigation partner Robert Turner advised hedge fund RAB Capital as it took action against UK administrator PwC. Linklaters partners Euan Clarke and John Turnbull acted for PwC.
US lead roles
In New York, Lehman’s Chapter 11 bankruptcy filing was handled by Weil Gotshal & Manges partner Harvey Miller. Partner Lori Fife joined Miller at Manhattan’s bankruptcy court in mid-September to thrash out details of the historic bankruptcy and sale of divisions of Lehman to Barclays.
On the same deal Linklaters’ created a transatlantic team for Lehman, with US head of litigation Larry Byrne leading a New York-based team. Byrne was joined by structured finance partner Adam Glass, bankruptcy partner Mary Warren, Paul Hessler in litigation, corporate partner Joshua Berick and banking partner Sabrena Silver.
US supporting players
Cleary Gottlieb New York partner Chris Austin advised private equity house Hellman & Friedman in its bid to acquire Lehman’s asset management arm. Boston firm Ropes & Gray played a similar role for Bain Capital, with Boston-based partner Alfred Rose leading the team.
Cravath Swaine & Moore and Davis Polk & Wardwell advised on the creation of a $70bn (£47.84bn) liquidity facility set up in the aftermath of Lehman’s collapse. Cravath New York corporate partner Rob Kiessling and finance partner Tatiana Lapushchik represented JPMorgan Chase, which acted as administrative agent and collateral agent for the facility.
Davis Polk insolvency head Donald Bernstein and partners Laureen Bedell, Bjorn Bjerke and Lawrence Wieman advised Citibank on its part in the scheme, as well as representing the bank consortium as document counsel.
UK FIRMS TAKE CHILL OFF ICELANDIC BANK COLLAPSE
When the global financial crisis hit Iceland, the country’s banks – and its economy – took a massive hit. With the main Icelandic banks having branches in the UK, and so many UK depositors holding accounts with them due to their high interest rates, a string of mandates were handed to UK firms.
When Kaupthing Singer & Friedland and Heritable Bank, a UK subsidiary of Iceland’s Landsbanki, both went into administration, Freshfields Bruckhaus Deringer won a role advising the Ernst & Young (E&Y) administrators who were appointed to deal with the collapse of both organisations. The firm also advised the Bank of England on the matter through a Chinese wall. DLA Piper won instructions from the Netherlands branch of Landsbanki.
According to one DLA Piper partner, the work it did on the Icelandic banks collapse was groundbreaking for the firm because it was dealing with a situation that was unprecedented from both a legal and political point of view.
“It wasn’t only about the relationship between the Netherlands branch and Icelandic headquarters, but the UK freezing order also played an important role, resulting in a politically sensitive and high-profile mandate,” he adds.
Denton Wilde Sapte was drafted in on the same deal as conflict counsel for E&Y when Freshfields was ruled out, while Allen & Overy (A&O) partner Mark Sterling advised Kaupthing in the UK and Slaughter and May advised the Treasury through partner Charles Randell.
A&O also initially advised Landsbanki when the Icelandic government seized control of the bank, but pulled out leaving a role open for SJ Berwin. The bank, which was given a £100m loan by the Bank of England to help repay its creditors, had its assets frozen by the UK Government to protect savers last October.
By the end of October the Icelandic government had turned to Lovells corporate partner Richard Brown as it mulled possible action against the British Government over its reaction to the country’s banking crisis. In January Weil Gotshal & Manges scored a High Court victory in the first step towards forcing the UK Government to revisit its decision to put the UK arm of Kaupthing into administration, with the court agreeing to the request for a judicial review from the state-controlled Icelandic bank. Weil litigation partner Matthew Shankland was instructed to represent the bank in its action against the Government in January after weeks of threats.
A&O’s role for Kaupthing continued and the magic circle firm later advised on the sale of the bank’s UK investment management business, led by corporate partner Alun Eynon-Evans and restructuring head Mark Sterling. Wealth manager Williams de Broe bought the business under advice from
Bird & Bird.
Bevan Brittan was also a beneficiary of the Icelandic banking crisis, being drafted in by the Local Government Association to help local councils try to reclaim some of the money they had invested with the banks. Partner Stuart Whitfield and senior commercial litigation associate Virginia Cooper led the advice.
The Icelandic crisis entered a new phase earlier this year when investment group Baugur was placed into administration. SJ Berwin was the choice of adviser for PricewaterhouseCoopers (PwC) administrators Tony Lomas and Zelf Hussain, who were asked to take control of Baugur by the company’s lending bank, Landsbanki. PwC retained White & Case as conflict counsel. Baugur turned to longstanding adviser A&O and partner Andrew Bamber.
THE EFFECTS OF THE LEHMAN COLLAPSE
Once the frenzy of the banking crisis had died down, the impact on the wider economy began to be felt. As Freshfields Bruckhaus Deringer restructuring partner Richard Tett joked to The Lawyer last October: “I’ve never felt so popular.”
Here is a selection of the many business problems that occurred on both sides of the Atlantic in the months following the collapse of Lehman Brothers.
- Woolworths: Freshfields restructuring partner Adam Gallagher was instructed by Deloitte on the administration of Entertainment UK, Woolworths’ wholesale arm. Linklaters advised Deloitte on the administration of the company’s retail arm. Freshfields restructuring partner Ken Baird, corporate partner Mark Trapnell and banking partner Neil Falconer advised the debt-ridden retailer in the run up to its administration. Weil Gotshal & Manges corporate partner Marco Compagnoni advised Daily Telegraph owners Sir David and Sir Frederick Barclay on their acquisition of the Woolworths brand. The Barclay brothers’ online company, Shop Direct Group, which formerly traded as Littlewoods Home Shopping, bought the brand as well as children’s clothing label Ladybird in February with the intention of running the business as an online retailer.
- Waterford Wedgwood: Linklaters insolvency partner Rebecca Jarvis advised Wedgwood’s UK receivers Neville Kahn, Angus Martin, Nick Dargan and Dominic Wong. Irish receiver David Carson was advised by A&L Goodbody partner Mark Traynor. In the run-up to being placed into administration Wedgwood, which had businesses in Ireland and the UK, was being advised by Slaughter and May and Ireland’s William Fry. At Slaughters’ partners Ian Hodgson, Andrew Jolly and Sanjev Warna-kula-suriya led the team, while William Fry partner Brendan Cahill advised the Irish businesses. Kirkland & Ellis later advised private equity house KPS Capital on the acquisition of Wedgwood’s assets. The team the firm fielded for the transaction included restructuring partners Lyndon Norley and Kon Asimacopoulos and corporate partners Graham White and Armand Della Monica.
- General Motors: Weil and Dewey & LeBoeuf advised the car manufacturer on filing for Chapter 11 bankruptcy protection. Weil veteran and restructuring partner Harvey Miller and partner Stephen Karotkin led the team, while former Weil restructuring co-head Martin Bienenstock led the Dewey team advising on the deal. Clifford Chance advised on the restructuring of the company’s European arm, which manufactures and sells Saab, Vauxhall and Opel cars. The car giant had requested a e3.3bn (£2.98bn) loan from the German government to help keep Opel afloat, after receiving $13.4bn (£9.13bn) from the US government.
- Ford Motor Company: Davis Polk & Wardwell and Shearman & Sterling won lead mandates on the restructuring of Ford Motor Company’s debt. Davis Polk partners Donald Bernstein, Michael Kaplan and Larry Wieman led for Ford in a deal that saw the company’s financing group Ford Credit make a $1.3bn (£0.89bn) cash offer for unsecured Ford bonds and a $500m (£340.50m) offer for secured loan debt. Shearman capital markets partner Lisa Jacobs and partners Michael Benjamin and Peter Blessing acted for deal managers Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan, Merrill Lynch and Morgan Stanley.