The rumour mill on Cadwalader Wickersham & Taft has gone into overdrive in recent weeks, with estimates on the firm’s drop in profit ranging from 20 per cent right up to 65 per cent.
When speculation linked rainmaker Dennis Block and litigation head Greg Markel with the exit door, the hypothesis that Cadwalader could unravel became the major topic of discussion on Wall Street last week, following The Lawyer’s revelation of a palace coup at the firm.
New York’s headhunters got terribly excited by the prospect of Block’s CV appearing on the market. Block’s book of business is worth $60m (£40.46m) in a good year, and the prospect of his departure highlighted what one former Cadwalader partner calls “the ticking timebomb of Dennis Block”.
“What happens if he falls under a bus?” asks the partner.
In a year when the firm’s core business of capital markets is turning over next to nothing, Block’s $60m is worth its weight in gold. Markel’s departure would be marginally more palatable, but losing your litigation chief in the current climate (and the guy advising Bear Stearns on the JPMorgan case at that) would obviously be a blow.
Markel denies that he and Block are thinking of leaving, but one Cadwalader partner says the threat was there.
“It was a powerplay by Greg and Dennis,” says the partner. “The object of it all was to get rid of [managing partner] Bob Link.”
If that was the intention, it looks like they succeeded. Last Wednesday (19 November), confirming The Lawyer’s lead story two days before (17 November), the ;management ;committee recommended to the partnership that managing partner Link, together with Charlotte chief Jim Carroll, should be removed from the committee.
The partnership will vote on the changes in time for December’s partnership meeting, and it is unlikely that the partnership will balk at the prospect of change.
Restructuring co-heads Bruce Zirinsky and Deryck Palmer are happy to step into the breach. Although Link’s departure from the board is highly symbolic, it has been a long time coming.
“Link built the firm into a capital markets powerhouse, but there was no hedge,” says another former partner.
When the credit crunch effectively closed the firm’s core structured finance business, Link’s strategy was left exposed. In January the firm made 35 redundancies. A month later Link was replaced as chairman by Chris White, but was handed the managing partner role, which he will retain until the committee recommends changes in January 2009.
In July the firm made another 96 associates redundant, meaning it has lost 131 associates and a chairman.
But what next? The first item on the management agenda is the overhaul of the remuneration system, which in effect means getting rid of some partners.
“After the redundancies, the leverage is shot to pieces,” says a partner at the firm.
It is expected that the overhaul will result in the departure of up to a dozen partners from the hard-hit real estate finance and capital markets practices, where ;the ;bulk ;of ;the ;earlier redundancies happened.
The firm’s compensation structure currently runs from three to 10 points. Rainmakers are on six to 10 points and the rest are on three to five.
“You go up and down depending on what Bob thinks you’re worth,” says a former partner. “And if you’re having a bad year he’ll totally slash your points.”
Which highlights just one more reason for Link’s lack of support when his fate was decided.
With the removal of Link, the big beasts seem to have got their way. If they stay then Cadwalader should be alright. It all depends on them.