Little market sympathy as giant crumbles
“On the whole, Bear Stearns’ legal team was pretty highly regarded for its technical skills and abilities. But there’s not a lot of warm and fuzzy feeling for it out on the street.”
That’s one New York partner’s take on one of the hurdles facing the massive legal and compliance department at Bear Stearns as it faces up to the inevitability of widespread redundancies.
Back in the 1990s, when hedge fund Long-Term Capital Management (LTCM) – another financial institution deemed too big to fail – tanked, Bear Stearns did not play ball. Although 15 banks helped bail out LTCM, Bear refused to stump up.
“It was seen as tough, very aggressive,” says the partner. “Fairly or not, the legal department, which would’ve been involved in the negotiations, bears a fair amount of the blame.”
In other words, if there are redundancies among Bear Stearns’ in-house lawyers, there are unlikely to be too many tears shed on Wall Street.
There is an irresistible comparison to be drawn here between Bear Stearns’ downfall last week and the story it eclipsed, that of Eliot Spitzer’s fall from grace the week before. In both cases, New York believes the protagonists got what they deserved.
Although it is too early to predict with any degree of accuracy, the betting is that there will be significant redundancies from the team headed by general counsel Michael Solender, a former partner at Arnold & Porter.
“It’s not clear that JPMorgan will need that many lawyers,” says the partner. “The trouble is, law firms aren’t in a big hiring mode and the banks are all under tremendous costs pressure. It’s going to be tough.”
It may, of course, also be tough for some of the external law firms Bear Stearns instructed regularly. One of the big losers, on paper at least, appears to be Cadwalader Wickersham & Taft, which regularly advised Bear Stearns on a range of matters, including asset-backed securities.
There is also a list of firms, including Dechert, Latham & Watkins, Sidley Austin, Skadden Arps Slate Meagher & Flom, Thacher Proffitt & Wood and Weil Gotshal & Manges that could lose out from the collapse.
The immediate beneficiaries of the $236m (£118.37m) acquisition by JPMorgan are Cadwalader and Skadden, which are advising Bear Stearns, and Sullivan & Cromwell, where partner Mitch Eitel and chairman Rodgin Cohen are advising the Bear Stearns board.
Cravath Swaine & Moore partner Erik Tavzel also has a role, advising financial adviser Lazard on the deal, while Wachtell Lipton Rosen & Katz partners Edward Herlihy and Nicholas Demmo are leading the team that is advising JPMorgan.
As revealed by The Lawyer in the New York blog last week, it was Cadwalader icon Dennis Block that brought Bear Stearns to his firm when he joined from Weil in 1998. Block first began working for the bank back in 1987, when he was brought in to (successfully) sort out a spat with Jardine Matheson. The Asian company tried to back out of a deal to buy 20 per cent of Bear Stearns, citing material adverse change, when the market crashed.
Bear hired Block, then at Weil, to sue Jardine. One insider recalls: “Dennis’s tactics and conduct of the whole thing was the starting point for his relationship with Bear Stearns.”
Although the future of anyone connected to Bear Stearns has a large question mark over it, the betting is that Block’s longstanding relationship will count when the dust settles.
And as one New York partner puts it: “The Bear Stearns work doesn’t just immediately change because JPMorgan is, maybe, going to acquire Bear Stearns. This deal has a long way to go before it closes. Shareholders could vote the deal down. There’s a whole grassroots army already trying to achieve just that.”
Aside from anything else, there are the fees to be fought over connected with the expected $6bn (£3.01bn) pot to meet the shareholder suits.
This is just beginning.
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