UK law firms bank on emerging markets to ride out credit crunch
7 January 2008
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Law firms at all levels of the market are bracing themselves for an uncertain year, with management looking at geographic diversification as a means of mitigating tumultuous market conditions.
As the interbank lending freeze continues far longer than anticipated, law firms have come to terms with the fact that 2007's easy ride is not going to be repeated in 2008.
For the magic circle in particular, the knock-on effect has been marked. While all four firms are adamant that their work pipelines remain robust, the consensus is that 2008 will be harder.
Clifford Chance senior partner Stuart Popham said firms must be prepared to mobilise quickly in order to take advantage of opportunities as and when - and crucially where - they arise.
"You can't say all US banks have stopped lending, just as you can't say all Japanese banks are immune to the effects of the credit crunch," he insisted. "In Japan there are US banks that can't lend because New York has told them they can't. What's clear is that 2008 is going to be a tough year, because the total volume of transactions will be down."
In 2007 firms could wait for the work to come to them, but Popham believes that, while there will still be a number of large transactions in 2008, their point of origin will be harder to predict. This means firms will have follow the work. Focusing on international strategy is also a key priority for the silver circle this year, with the likes of Herbert Smith, SJ Berwin and Travers Smith all banking on very specific markets to drive their fortunes.
Herbert Smith is going to use 2008 to build its alliance with Germany's Gleiss Lutz and Dutch firm Stibbe and will also up its Middle East focus with the launch of its Abu Dhabi office this month. Similarly, Slaughter and May practice partner David Frank insisted that his firm will be fostering its best friends relationships.
SJ Berwin and Travers are also looking east in a bid to maintain growth amid stalling markets.
Travers managing partner Chris Carroll said: "The general outlook isn't very rosy. I don't like the look of 2008. We'll spend 2008 travelling more than we have been. We want to develop our legal network beyond Western Europe and the States to Eastern Europe and Russia."
SJ Berwin senior partner Jonathan Blake has also earmarked locations such as France, Germany, the Nordic region and the Middle East as centres for growth. "China, Russia and the Middle East will become increasingly important to us," he said.
Others, such as Allen & Overy (A&O), DLA Piper, Freshfields Bruckhaus Deringer and Norton Rose also noted the importance of Russia. A&O corporate partner Allan Paul said: "Infrastructure will be significant - maybe not in the UK, but certainly in Russia and places like that."
Freshfields senior partner Guy Morton agreed. "We'll invest further in emerging markets such as Russia and the Middle East," he said, "and keep a close eye on developments in India."
Firms including Denton Wilde Sapte (DWS), DLA Piper, Eversheds, LG and Norton Rose are also focusing their attentions on the Middle and Far East regions.
DLA Piper co-chairman Nigel Knowles noted: "The credit crunch hasn't applied in Continental Europe or the Middle East."
In terms of practice areas, there is a general consensus that certain aspects of corporate and finance work have dried up.
Mayer Brown vice-chairman Paul Maher said: "The business mix is showing signs of changing, but as finance goes down, litigation goes up. The mix will probably change in 2008, although the overall volume won't."
Despite a widely held belief that restructuring work will increase drastically, Howard Morris, chief executive at DWS, said there has been no evidence of this, and Travers' Carroll poured scorn on those rushing to recruit. "All these people who claim to be insolvency experts, have they really had the experience of handling a major recession and handling clients through a recession?" he queried.
That said, firms such as SJ Berwin are bracing themselves for just that eventuality. Blake said: "We've been considering how we'll react if market volatility continues. Recruiting litigators could be something we'll have to do."
The slowdown in global markets has yet to make an impact on law firms' recruitment drives, with all firms stressing their commitment to increasing headcounts.
Maher said Mayer Brown continues to employ an aggressive recruitment strategy, with the intention of doubling the size of its London practice and bulking up significantly in New York.
Linklaters managing partner Simon Davies also vowed that his firm's "commitment to build a powerful presence in New York continues".
For most firms, while the balance of work has shifted, the overall expectation is that financials will hold up, at least for the first few months of the year.
Slaughters' Frank said: "I think it could be a reasonable year, but after April it might be more uncertain. You need a more expensive crystal ball than mine to know the extent of what will happen and how it will affect us."
Clifford Chance's Popham agreed. "If I'm cautiously optimistic, then I don't think turnover will be hit," he said. "However, I don't know if we can maintain the increase in growth."
Despite continued optimism concerning recruitment, the fact is that times have changed and everybody is having to get used to it. As Carroll pointed out: "I've often said that you have six or so good years then three or so not so good years. There's no point dodging it."