Finance and global reach key as magic circle seeks inroads into US

Cracking the US legal market has been one of the toughest challenges faced by the UK’s magic circle. While Allen & Overy (A&O), Clifford Chance, Freshfields Bruckhaus Deringer and Linklaters have made large-scale strategic moves to break into the US, they have found that making waves in the mature US legal market is a big ask.

In the global stakes no one can deny the clout of the magic circle. Having successfully broken into the Middle East, Asia and Continental Europe, these players have proved they have what it takes to corner the market in new territories. However, the US has been a different story.

To really break the US, the magic circle will need to build strong relationships with US corporates and financial institutions, many of which are headquartered in New York. However, as in the UK, these institutions tend to have extremely entrenched relationships, which have proved difficult to penetrate.

The dominance of the traditional elite New York firms stands strong, with the likes of Davis Polk & Wardwell and Simpson Thacher & Bartlett maintaining strong ties with JPMorgan Chase.

Despite the magic circle firms having had a presence on the ground in New York for around a decade, how many of their crucial UK banking relationships have been successful across the Atlantic? And will they be able to develop their brands in the US as well as they have elsewhere in the world?”It’s certainly going to be a challenge and I think we’re a long way off having a successful brand in the US,” confesses one magic circle partner. “The client base takes a different shape in New York. Those banks that are headquartered in the US will already have established relationships with successful US firms, so it’s not easy for the magic circle to make inroads.”

Although it is tough for the magic circle in the US, these firms have made bold steps in the right direction. Linklaters, which launched its New York office in 2005, now has 150 lawyers, including 30 partners, on the ground. The firm’s lateral hiring strategy since its launch has seen it bulk up in litigation with the hire of partner Larry Byrne and a team of 12 associates from White & Case‘s New York office.

In finance the firm hired former co-head of securitisation at Shearman & Sterling Gary Barnett and Sidley Austin capital markets partner Adam Glass in 2004. It also bagged Latham & Watkins head of investment management Scott Bowie in 2005.

In corporate the firm scored a notable success last year advising Royal Bank of Scotland on its acquisition of ABN Amro. But while Linklaters New York partner Larry Vranka led the firm on the deal, it lost out to Shearman on the regulatory aspects due to a lack of capability in this sector.

“Recruiting from the market is crucial,” says John Tucker, Linklaters managing partner for the Americas. “If you look at the strong US firms, success in new markets has been down to excellent lateral hires that have driven their growth and strengthened client relationships.”

While there will always be rumours about magic circle firms merging with US firms, that is not where the focus is now.

Since its troubled merger with Rogers & Wells in New York seven years ago and its dalliance with partners from San Francisco firm Brobeck Phleger & Harrison, Clifford Chance is looking more toward cherry-picking partners and teams to bulk up in the States.

Clifford Chance and Linklaters have both made strides towards building successful finance teams in the US. Breaking into finance in New York may well be the key to success for the magic circle.

“The magic circle is more likely to make it in finance than corporate in the US, purely because they can capitalise on global relationships with banks,” says one US corporate partner. “US corporates are unlikely to take a chance on a UK firm they have no experience of, especially with the enormous complexities in US corporate deals.”

In terms of numbers, though, Linklaters has 30 finance partners in New York, while Clifford Chance has 29.

“The firm spends a lot of time focusing on recruitment in New York,” says Clifford Chance global head of banking Mark Campbell. “It will take time for any magic circle firm to become as successful as they want to be in New York. Recruitment in core areas such as finance is a major objective.”

A&O, which now has 10 dedicated finance partners in its New York office, hired Mayer Brown leveraged finance partners Mark Wojciechowski and Andrew Mattei in August last year to bolster its New York presence.

“Our firm is about 100 lawyers in New York now,” says A&O finance partner Stephen Kensell. “Having a dedicated team of finance lawyers is important to developing in the US. Serving global clients well, rather than focusing on US clients, is a more realistic and effective method of growth. New York and London are the two main financial centres of the world, so we need to be strong in both. The reason we’re here is in response to global clients being active in both centres. We need to keep sight of that.”

While the market seems to be opening up slightly for UK firms in New York, with the likes of A&O and Clifford Chance securing US mandates for large financial institutions such as Barclays and BNP Paribas, there is certainly a long way to go.

Securing the majority of mandates for banks in Europe does not mean the same will happen in the US, and luring banks away ;from regular advisers ;is difficult.

“Where the magic circle has succeeded globally is in markets that aren’t mature and there’s a need for these firms to move in,” one magic circle partner says. “The US is a mature market and the US elite are aggressive about keeping hold of their clients.”

In the late 1990s Freshfields focused on building a strong structured finance team in the US. In recent times the emphasis has shifted to dispute resolution and developing a stronger corporate team.

“Structured finance has long been a strength of ours in New York,” says New York managing partner Brian Rance. “Building up in corporate is different from finance, but we’re confident we can strengthen in this area.”

Given recent extreme market volatility, making headway in developing these crucial relationships is likely to be even harder, with financial institutions tending to stick with who they know when times are tough.

“I think that when the markets have recovered, however, we could see the magic circle’s efforts really bearing fruit,” one US capital markets partner says. “They’ve focused a great deal on making star hires, which always serves to bolster the reputation of a firm. If this continues and the markets show ;signs ;of ;recovering, competition could get tighter.”

It is certainly true that being a global rather than a domestic powerhouse is the aim for many large law firms. While some US firms such as Latham have cracked this, it is arguably the UK magic circle that dominates the global legal landscape.

“Clifford Chance has global success and ultimately you want to build a firm that can serve clients worldwide,” says Campbell. “We ;have ;all ;of ;the capabilities a client could need. It may take time for us and the magic circle to develop further in the US, but the global reach will ultimately mean we’ll succeed.”