Chosen few set to profit from Lehman and Merrill crash and burn

Instructions of the century are up for grabs in the fallout from the financial crisis.

Chosen few set to profit from Lehman and Merrill crash and burnIt took just over a year to hit, but when it did the results were spectacular. The reaction on Wall Street said it all – newspaper headlines hailed a ‘Wall of Fear’ and ‘Shock Market’, while television newscasters repeatedly referred to the earthquake that had hit New York’s financial district.

Even if the shockwave analogies are more than a little cliched, the wounds inflicted by the demise of investment banks Lehman Brothers and Merrill Lynch remain raw, so much so that veteran investor Warren Buffett has likened the situation in the financial markets to an “economic Pearl Harbour”.

But while a raft of firms will be affected by the loss of Lehman in particular, and the chastened finance sector more generally, for the foreseeable future vast sums of fees will be generated for a select group of law firms.

A glance at the column below shows the number of firms on both sides of the Atlantic that stand to benefit from the collapse of Lehman alone. When the work being done on propping up ­insurance giant AIG, converting Morgan Stanley and Goldman Sachs from investment banks into bank holding companies, and the acquisition of Merrill Lynch by Bank of America are taken into consideration, it is clear that law firms are enjoying a veritable feeding frenzy. The feast is certain to grow in the coming months.

As detailed in today’s Rodgin Cohen profile, the Sullivan & Cromwell chairman is emerging as a key figure in the financial markets crisis.

Lauded for his skills and unparalleled market knowledge, Cohen has guided AIG through its recent woes and advised Goldman Sachs on its transformation from an investment bank into a holding company, allowing it to access ­Federal Reserve funds, while the market can take comfort from the greater level of regulation it will be subjected to. Earlier in the year Cohen acted for Fannie Mae on its government bailout.

While the impact of Lehman’s collapse has barely lessened in the past two weeks, it is clear that the initial shock has well and truly sunk in with the litigators gearing up for the next round of instructions.

Simmons & Simmons hedge fund client RAB Capital has kicked this off, launching a claim against Lehman’s UK administrator ­PricewaterhouseCoopers (PwC) to recover £50m of assets that were frozen when the bank went into administration. Financial litigation partner Robert Turner is leading and has instructed Simon Mortimore QC and Andreas Gledhill of 3-4 South Square. Linklaters ­partners John Turnbull and Euan Clarke are acting for PwC, instructing William Trower QC and Daniel Bayfield, also of 3-4 South Square.

The radical alteration seen in the investment banking sector over the past few weeks has been without precedent, but RAB’s action, which is expected to be copied by a number of other hedge funds in the coming weeks, is not.

Under advice from Nabarro partner Peter Fitzpatrick, RAB has lined up next to fellow hedge fund SRM Global to take action against the UK Government for the investment losses it sustained when Northern Rock was nationalised.

This time last year, when Northern Rock’s woes seemed like a big deal, nationalisation was viewed by many as the worst option ­possible. Now, with the Northern Rock situation paling in comparison to the US government’s action on AIG, Fannie Mae and Freddie Mac, nationalisation is the order of the day.

These are fascinating times
– particularly for the many tight-lipped lawyers close enough to the situation to know the true extent of what is going on.

While at this stage it is almost impossible to estimate what the total legal bill for the financial ­crisis will be, in many respects it is irrelevant. For the lawyers involved, even the most minor instruction ;will ;be ;career ­defining.


UK lead roles:
Linklaters head of restructuring and insolvency Tony Bugg, restructuring partner Richard Holden and corporate partners David Ereira and Matthew Middleditch are leading the team representing Lehman Brothers’ European ­administrator PricewaterhouseCoopers (PwC). Linklaters has fielded a 20-partner team on the administration.

UK supporting players:
Clifford Chance corporate partner Guy Norman is advising Barclays on the acquisition of parts of Lehman’s US businesses.

Japanese bank Nomura, which has bought Lehman’s Asian business, is being advised by Skadden Arps Slate Meagher & Flom and Freshfields Bruckhaus Deringer. The Skadden team is being led by corporate co-head and Hong Kong partner Nicholas Norris and includes London restructuring partner Lynn Hiestand, while the Freshfields team includes London corporate partners Stephen Hewes, Mark Kalderon and Stephen Revell. A Freshfields restructuring team was also drafted in by the Bank of England to advise on the UK regulatory aspects of Lehman’s administration.

Lehman panel firm Ashurst is advising finance house CarVal Investors on a £100m emergency loan that will ensure the London staff of Lehman get paid at the end of September. Corporate head Adrian Clark is also advising the collapsed bank on the sale of its European operations.

Simmons & Simmons financial litigation partner Robert Turner is advising hedge fund RAB Capital as it takes action against UK administrator PwC. Linklaters partners Euan Clarke and John Turnbull are acting for PwC.

US lead roles:
In New York, Lehman’s Chapter 11 bankruptcy filing is being handled by Weil Gotshal & Manges partner Harvey Miller.

Sullivan & Cromwell senior partner Rodgin Cohen advised AIG on its ‘nationalisation’ and also Goldman Sachs on its structural transformation.

US supporting players:
Cleary Gottlieb Steen & ­Hamilton New York partner Chris Austin is advising ­private equity house Hellman & Friedman in its bid to acquire Lehman’s asset management arm. Boston firm Ropes & Gray is playing 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 (£39.29bn) 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 participation in the scheme,
as well as representing the 10-bank consortium as document counsel.