Banking and Finance

There are three giants in the London finance market: Clifford Chance, Allen & Overy (A&O) and Linklaters, and all had a successful year during the boom.

There are three giants in the London finance market:
Clifford Chance, Allen & Overy (A&O) and Linklaters, and all had a successful year during the boom.

But outside the top three not everyone was having such a ball. Norton Rose’s finance team has suffered some damaging departures recently, although it stillm managed to have a reasonably good year financially, posting a 16 per cent increase in revenue, from £74m up to £86m. But while turnover has increased, revenue per partner (RPP) has decreased by 11 per cent, from £1.1m in 2005-06 down to £979,000 in the last financial year, making it one of only five firms in the top 15 on finance to post an RPP of less than £1m.

The firm saw a number of key losses from its finance team in its Dubai office, a traditionally strong outpost. Norton Rose’s strength in Islamic finance across the practice group was challenged last year when key partners Nadim Kahn and Zubair Mir left to join Herbert Smith in October. Then in January this year partner Tahir Ahmed left to join Ashurst.

Norton Rose’s head of banking Stephen Parish says the group remained confident about its presence and strength in its Dubai office and argued that it has rebuilt its practice group in other areas of banking.

“It’s been a strategy to build up our capabilities in securitisation during the last year. We used to be very strong in this area, but lost some key partners. I feel that we’re now doing well in securitisation and have again built up a good team,” says Parish.

If Norton Rose’s figures appear poor, Denton Wilde Sapte’s (DWS) look disastrous. The finance team also suffered a dip last year, with total revenue down by 3.4 per cent, from £44m in 2005-06 to £42.5m.

In previous years DWS’s finance practice has also been hit by a number of key partner departures, including those of leveraged finance experts Ian Yeo and Chris Fanner, who joined Herbert Smith in December 2005.

The team, once a thriving banking and finance practice and the core of the firm, now contributes less to firmwide turnover than before, having dipped by 2.8 percentage points in 2005-06, from 30 per cent of turnover to 27.2 per cent in 2006-07.

The 6 per cent drop in RPP last year from £965,000 to £904,000 puts DWS almost bottom of the charts among the top 15 finance teams, second last only to the rising Berwin Leighton Paisner. That result is hardly surprising considering how much the firm’s finance capabilities have dwindled during recent years. Since the 2003-04 financial year, DWS’s finance team’s RPP has plummeted by 43.5 per cent, from £1.6m to £904,000.

“The problem with DWS is that the market’s become extremely competitive,” says a finance partner from a rival firm. “I don’t think their finance team has what it takes to win the clients from its competitors like it once did.”

In March this year DWS managing partner Howard Morris launched a review of the finance team in order to address the underperformance that has pulled the revenue down. Reversing the trend will not be easy. “It’s a very competitive market,” agrees Morris, “and there are some fantastic firms in London that have very strong finance capabilities. This has meant that finance has struggled and we needed to address that. We’ve renewed our international focus and will be moving away from areas that haven’t been as profitable for us.”

Howard adds that UK PFI and PPP projects have not been as successful as in the past, but said that international project finance is booming.

“We will still do domestic projects work, but other areas such as the UAE [United Arab Emirates] have been much more successful. This is why we’ll focus on this area,” Howard asserts.

Like Norton Rose, DWS’s finance team has suffered from departures in the UAE, with the loss of its Islamic finance team. The eightstrong team, headed by Rahail Ali, moved to Lovells in Dubai, leaving DWS with no capabilities on the ground.

DWS head of Islamic finance Farmida Bi argues there was a limited number of lawyers who could really claim to be Islamic finance specialists. “This will certainly change over the next few years as trainees and associates gain more experience in this area,” she adds. “But for the time being it’s hard for any firm to keep hold of the specialists.”

Back at the other end of the finance table, all three of the leading pack had a stellar year, although each occupies different sectors of the market.

With a highly liquid market and a booming private equity sector, it is easy to see why these firms performed so well and secured their places at the top of the revenue table.

“Every firm has done well during the past year. Success in a boom period is not really a good test of a firm’s competence. Private equity has meant finance teams have all been kept very busy, but it will be interesting to see
how firms fare during the downturn,” comments former Freshfields Bruckhaus Deringer banking partner David Ereira, who is now at Linklaters.

Clifford Chance is the undoubted market leader, notably on acquisition finance. Its total global revenue of £418m is a 9.5 per cent increase on 2004-05’s £361m.

Global banking, headed by Mark Campbell, contributed most to the total finance turnover with approximately a 19 per cent increase on last year, taking it to £285m, while capital markets’ contribution, headed by David Dunnegan, was up by 23 per cent, from £108m to £133m.

Clifford Chance saw a drop of 5 per cent in RPP, from £1.89m down to £1.78m, during the past financial year, but this dip can be attributed to the 44 lawyers who joined the group’s partnership in 2006-07.

Globally the European banking team brought in the most with £97m, followed by Asia with a £25.5m contribution and the UK chipping in with £20m.

London’s banking practice was up by almost 20 per cent to £137m of banking’s total revenue. It had a stellar year, cementing its relationships with both the private equity houses and senior lenders.

Acquisition finance was a core strength for the firm, with the team advising longstanding clients Royal Bank of Scotland and Citibank on the financing of Ferrovial’s €15bn (£10.22bn) acquisition of BAA, a deal that helped Clifford Chance scoop Finance Team of the Year at The Lawyer Awards in June.

The derivatives team also fared well, bringing in £28m, with asset and structured finance having a slightly less successful year in a tough market, securing £22m for the group.

The team has made a big play for the lucrative derivatives market by ramping up its capabilities with the hire of senior partner Simon Gleeson from Allen & Overy in October 2006. It has one of the best financial regulatory practices on the globe.

And what of A&O? Its lender client base ensured it remained active on debt syndicates during the year, although it is less balanced that Clifford Chance, with a much weaker sponsor practice. These included the mandate advising Mediobanca and UBS as the lead arrangers for the €35bn (£23.85bn) financing for Acciona and Enel’s joint bid for Endesa in early April this year.

“It’s been an exemplary year, particularly in regulatory. This is an area we’d like to expand, but there are few lawyers who specialise in regulatory,” says chairman of global banking at A&O Michael Duncan.

On the private equity side A&O’s lack of sponsor clients has meant it has less muscle in this arena. Higher fees resulted in unpopularity with sponsor-facing law firms that regularly refer business to other firms.

Banking represented 29 per cent of the firmwide turnover at £257m, an increase of 20 per cent on last year’s £213m. International capital markets represented 18 per cent of total turnover at £159m, while the finance team’s RPP saw an increase of 13 per cent, taking it above £2.1m.

A&O capital markets partner Boyan Wells says the capital markets team had a storming year in 2006-07.

“As everyone will tell you, it was an incredibly busy year,” Wells says. “Capital markets, like all the other parts of the finance group, did extremely well and were busy throughout the year. In particular the structured finance sector was very busy, so every firm that invested in this area benefited. I’m pleased to say A&O was one of these firms.”

Linklaters’ acquisition finance practice has skyrocketed in recent years, and this is reflected in the finance group’s turnover of £392m, an increase of 23 per cent on the previous year.

The team was ranked first in RPP for the second year running, with an 11 per cent increase up to £2.3m last year from £2m in the previous financial year. Holding on to first place with RPP underscores Linklaters’ strength, which has been achieved via its intensive lateral hiring strategy.

The acquisition finance team, built with a succession of lateral hires in recent years, hired former Freshfields real estate finance partner Ereira in February, who was later joined by banking star Brian Gray from Freshfields in June this year.

“We’ve built an extremely dynamic and focused team,” says Ereira. “The leverage side was a particular success for us in the last financial year and we’re expecting to continue with strong growth. The key is managing the clients well and ensuring you have a relationship that will result in continual work rather than operating like a deal factory.”

The team has an impressive resumé in the private equity sphere, having advised on the financing of many of last year’s prominent key deals.

With lawyers advising the sponsors on private equity transactions that are able to exert influence over which lawyers advise the banks on the financing, Linklaters has drawn on its popularity and benefited from this recent trend.

The team has also made its mark in the world of covenant-lite loans, an arguably short-lived trend given the current credit crunch. In 2006 Linklaters advised on two groundbreaking covenant-lite loans that arguably shaped the financial markets in the latter part of the year.

In March partner Gideon Moore advised underwriters JPMorgan on the financing of private equity firm Apax Partners’ proposed acquisition of a 49.9 per cent stake in Trader Media Investments from Guardian Media Group, a covenant-lite transaction.

This deal came after Linklaters advised on the covenant-lite refinancing of World Directories’ senior facilities in 2006.

While the restructuring market has been slow for a few years, Linklaters still managed to secure key clients in this sector during an economic boom. For example, partners Robert Elliott and Bruce Bell advised car material manufacturer TMD Friction on its €875m (£596.22m) restructuring last year. This deal was the biggest European restructuring in 2006.

Freshfields reported a £197m turnover for its finance team, representing 20 per cent of the firmwide turnover and a similar increase for the group on the previous financial year.

It is an understatement to say it has not been an easy year for the firm. Freshfields spent much of the year facing inwards, dealing with a massive internal restructuring that saw the exits of approximately 100 partners across the projects, litigation, equity capital markets and finance practice groups.

As well as the departure of Ereira, the firm saw other losses, including those of key finance partners Peter Green and Jeremy Jennings-Mares, who left to join US firm Morrison & Foerster to launch its structured finance practice in London.

This trend has continued into this financial year with the departure of Rex Rosales, who moved to Reed Smith Richards Butler in May, as well as Gray, who announced his departure to Linklaters in June.

Despite the turbulence, Freshfields’ finance team still increased its RPP by 28.5 per cent, from around £1.5m to £1.9m, and added seven to its partner headcount, although tellingly, virtually none were made up to equity. This jump is a step change on the previous increase of 8 per cent between the 2004-05 and the 2005-06 financial years.

Freshfields’ renewed focus on private equity has meant the finance team has effectively been sidelined in favour of M&A and corporate matters, making finance closer to a support function for the firm’s corporate team. But the boom in M&A means that the finance work generated by the corporate group has led to the revenue remaining strong.

“We’ve gone from being a largely borrowerbased team to having a much broader mix in the practice, including a strength in restructuring,” says Freshfields head of banking David Winfield.

DLA Piper, which has a calendar financial year, has been the rising star of the finance sector over the past four years. The firm has moved from the bottom of the table in 2003 up to fifteenth last year. The team’s revenue has almost doubled in the past two years, with an increase of £43m, from £55m during 2005 up to £98m in 2006.

Head of finance at DLA Piper Michael Burton attributes the team’s dramatic growth in part to the success of its new capital markets team, established in June 2006. In an intriguing development, former A&O senior associate Sharon Smith joined the firm as partner at the time to launch the debt capital markets group.

“The new team’s done extremely well in London and in international offices. Capital markets isn’t a traditional sector for us, so we’re very pleased with its progress,” says Burton. The team, which also has a place on the panels of five UK banks, gained key mandates from each client throughout the year.

CMS Cameron McKenna’s finance team dropped to the bottom of the top 15 bestperforming groups, having suffered a revenue decrease of 22 per cent, from £38m to £29.6m, during the last financial year. While finance turnover has dropped, Camerons’ combined corporate and finance groups contributed a healthy percentage to firmwide turnover. Together finance and corporate contributed a total of £116m to turnover, representing 59 per cent of the firm’s £197m revenue.

Despite the apparent finance revenue drop, Camerons’ head of banking and finance Will Meredith argues that the team had had a healthy year, with the firm developing strengths in core parts of the market. “I think that developing the structured finance capabilities is something we’re very
pleased we’ve done. Derivatives in particular have been a growth market, and to be able to participate in this sector has been extremely beneficial for us,” says Meredith.