For firms that had their fingers burnt in the crash of 1998, Russia has been regarded with a good deal of caution over the past few years. But finally there are signs that Moscow is rising from the ashes and now is the time for law firms to get their Russian houses in order.
None more so, perhaps, than Clifford Chance. The transfer of London banking partner Michael Cuthbert to the Moscow office is a sign that it is an issue the firm is well aware of. To be fair, the firm has always had a top reputation in the region. But black clouds were on the horizon for the Moscow office in the form of the CC Pünder merger. During 2001, the firm lost around 15 lawyers from the integrated Moscow offices. A number of those lawyers were axed, with the firm citing market volatility as the reason. But tensions saw others leave of their own accord.
The latest departure – that of banking partner John Balsdon to Herbert Smith – is bound to hurt, despite the fact that Balsdon was a salaried rather than an equity partner. In fact, his lack of equity status was somewhat surprising, as he was regarded by many in the market as the face of Clifford Chance's Moscow presence, on the banking side at least. Balsdon has worked on a number of major deals, including advising the financing bank for Blue Stream's $1.76bn (£1.34bn) Eastern European pipeline.
For Cuthbert the challenge will be ensuring more of the big finance work goes Clifford Chance's way. It must have been a snub for the firm that Schroder Salomon Smith Barney and Credit Suisse First Boston turned to Linklaters for advice on OAO Gazprom's £344m eurobond issue last year. In November, the firm also lost out to White & Case, which advised ABN Amro and Dresdner Kleinwort Wasserstein on the £106m eurobond loan to state-owned oil company Rosneft – a deal that apparently Clifford Chance, Linklaters and Freshfields had all expressed an interest in. Obviously Cuthbert has some work to do.
But although the news of Balsdon's departure must be frustrating, one man does not make a law firm and Clifford Chance still holds its position as one of the strongest banking advisers in the region. Recently it has advised longstanding client UBS Warburg on an exchangeable bond issue for Yukos, Russia's second largest oil company.
Clifford Chance isn't the only firm that needs to sort out problems in Russia. Denton Wilde Sapte seems in a dither as to what to do with its Moscow office. But time is money, and indecision on the part of the firm – which is currently reviewing the office because of a lack of profitability – will be costing it dearly. Managing partner Doran Doeh splits his time equally between London and Moscow – in itself a reflection of Dentons' dilemma. No doubt the firm is wondering whether it can cut costs by doing Russian work out of the London office. Last year its biggest Russian deal, advising Gazprom on the aforementioned eurobond issue, was led by finance partner Farmida Bi out of London.
But closing the Moscow office altogether would seem crazy for a firm with such strong energy connections, especially at a time when everyone else seems to be climbing on the Russian bandwagon. Without people on the ground, winning the work in the first place will undoubtedly be more difficult. Perhaps Dentons needs to take a leaf out of the Clifford Chance book – and invest in a full-time heavyweight for the office. The only problem being that top lawyers with good Russian experience are somewhat thin on the ground. And with the Americans and the magic circle all expressing a renewed interest in the jurisdiction, a job at the less profitable Dentons may not be that appealing.
Although the Russian market still needs to be shored up, big projects such as Sakhalin Island are on the go, and Putin's reforms are bringing back foreign investors. Like it was for Chekhov's three sisters, Moscow is once again the place to be. The only difference being, law firms need to turn that dream into a reality. And they need to do it soon.