The bigger bang: who’s got what in the Lehman, HBOS sagas

The bigger bang: who’s got what in the Lehman, HBOS sagasThe groans of the US’s fourth-largest bank and a Scottish heavyweight as they unceremoniously fall to their knees. The rustle of papers in cardboard boxes as they are carried through swishing ­revolving doors.

The tapping of fingers of Lehman Brothers’ lawyers anxiously composing CVs. The rubbing of recruiters’ hands being brought together in glee. The slamming shut of bank doors. The sighs of relief from Lehman’s lawyers, who are told that they are not getting the push (yet). The squeaking of the wheels of the coffee trolley dispensing sustenance to rows of fee-earners in One Silk Street. What a week. Ears have been reverberating with this cacophony, ­leaving lawyers, bankers and observers trying to make sense of it all.

The events of the last week have been described by one lawyer as a “watershed moment akin to the Big Bang”. Meaning, of course, the sudden deregulation of financial markets. But he might just as well have been talking of the origin of the universe, given the way in which the world as we know it is likely to morph as a result.

Allen & Overy (A&O), Clifford Chance and Linklaters have seen their securitisation and debt capital markets practices hit over the past year. They will avoid further damage through the mandates they have picked up acting for HBOS and the International Swaps and ­Derivatives Association (A&O), Barclays (Clifford Chance) and Lloyds TSB and PricewaterhouseCoopers (Linklaters).

On the other side of the Pond, Davis Polk & Wardwell, Sullivan & Cromwell, Wachtell Lipton Rosen & Katz and Weil Gotshal & Manges are all busy ­respectively advising the Federal Reserve, AIG, Bank of America, and the US government and Pricewaterhouse-Coopers (PwC).

At first sight it might seem that things have come full circle with this line-up. After all, Linklaters and Weil are ­advising the respective UK and US arms of PwC on Lehman’s restructuring, just as they did back on the last major transatlantic instruction of this ­magnitude – Enron.

But the scale and complexity of the Lehman deal marks it out from any ­previous bankruptcy.

Neil Griffiths, insolvency partner at Denton Wilde Sapte, says: “The number of counterparties involved make this unprecedented. It will be a huge exercise to unravel everything. I’m sure this will generate new structures and new ­precedents for dealing with something of this nature.”

Since no one yet knows the level of exposure of those counterparties, litigators are being swamped with requests for advice on contracts with Lehman. Stephenson Harwood head of commercial litigation John Fordham says clients are querying whether they can get out of them and whether they have to pay.

But just as some firms are profiting, others will see their fortunes decline. Take Cadwalader Wickersham & Taft and Shearman & Sterling. The fall of their respective clients Lehman and Merrill Lynch is likely to provoke a rethink at the firms about their market strategies.

Will regulation come in time to ­prevent there being another spectacular collapse of a financial institution?

Transactional work everywhere will be dented further by the complete drying up of all inter-bank lending. As reported on page 4, redundancies in the UK are now pushing the 500 mark and that number is poised to increase.

In this context, the credit squeeze of the past few months now looks more like a credit cuddle.