The pain in Spain
Law firms are doing their bit to help ease the country’s financial crisis
About a month ago, the Spanish government announced the results of a tender for one of the most significant pieces of legal work going on in the jurisdiction at present. Cuatrecasas Gonçalves Pereira was the winner, picking up the mandate to lead a €35bn (£28.3bn) injection into the regional
Spanish economy, the fondo de financiación de pago a proveedores (fund for financing payments to suppliers, or FFPP).
As anyone who’s picked up a paper over the past couple of weeks will be aware, such measures are crucial right now. Spain must do all it can to rescue itself from crisis amid estimates that its banking sector needs a €70bn injection and a downgrade by Moody’s.
But it has emerged that law firms, too, are doing everything they can to help. Sources confirm that Cuatrecasas will be paid just €1 for the highly technical work involved in the injection. Funds will be channelled into local authorities and autonomous regions through a syndicated bank loan, with the whole process designed to vastly reduce regional debt.
Cuatrecasas was not alone in bidding so low for the work, with the other firms tendering - Clifford Chance, Garrigues and Uría Menéndez - also believed to have cut their prices right down.
The Spanish firms did not have a great 2011, with fee income essentially flat for all the big three. They cannot afford to lose money on transactions - but then, their country’s economy needs even more help. The prestige and legal challenges involved will have to be payment enough for Cuatrecasas.
Readers' comments (4)
Anonymous | 18-Jun-2012 9:50 am
Many large Spanish firms seem to want to defy gravity. They are desperate for work and to keep utilisation rates up, and most significantly, avoid public lay-offs - they're all cost-cutting like mad, and "managing attrition" but no-on wants to be appear in the newspapers for having implemented an ERE (official redundancy programme).
Without being paid for the work they are actually doing however, they seem to be ignoring the realities of the economic situation outside their own plush four walls, but which is getting ever nearer to home. Their clients must think their mad or already over-paid, or "why wont they do my work for free?". The UK & US firms are cutting back, they must be doing it for a reason?!
Most big Spanish firms' partners are praying for an upturn that never comes and still seemingly willing to swallow the cost of (admittedly very cheap by UK standards) associates working on jobs for nothing. The management are scared to take the big decisions, instead preferring to dilute the equity - less fixed-costs on the P&L + more "profitability" - and claim growth when there is none.
Cuatrecasas recently announced a 0.4% revenue increase (2010 v 2011), but with Spanish inflation currently running at c 2%, that's actually a 1.6% decrease year on year. Garrigues posted revenue growth of 0.68%, but its year-end is in August, so last year's figures don't even reflect the very dramatic drop in Spanish activity that has occurred since last summer. Only one of the big firms has been honest about what is actually happening, as far as I can see.
Pehaps however, reality is beginning to dawn. Cuatrecasas has told 35 of its salaried partners to shape-up or ship out, if they ever want to see equity. That two of the firm's key finance partners are meanwhile pimping out their teams for nothing, with the management's consent, must however be a kick in the teeth for those of the 35 who've been told that their billings aren't up to the level required to be a "proper" partner.
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Anonymous | 19-Jun-2012 10:55 am
This is not charity. You need to take seriously when you defend your clients. This is a strange way of gaining prestige, it is just the opposite.
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Felix | 19-Jun-2012 2:58 pm
Que tal Marbella?
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Carles | 20-Jun-2012 9:23 pm
Where is the problem? This is an indirect way of paying for advertising in the media. It is not the first and the only company that does this.
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