London is no longer the promised land for US firms. By Catrin Griffiths
Could London be losing its lustre for New York lawyers? Certainly, the UK legal market is not yielding the revenues that it once was. Revenues in the 2008 calendar year fell at 18 of the top 30 firms – an unthinkable prospect two years ago. Cadwalader was down 31.6 per cent from $54.1m (£36.97m) in 2007 to $37m (£25.29m) in 2008. At Dechert and Reed Smith turnover dropped by 18 per cent and 14 per cent respectively, while even the mighty Latham & Watkins saw revenue fall by 13 per cent, from $172m (£117.55m) to $150m (£102.51m).
Some of the results are distorted by currency fluctuations – as The Lawyer has previously noted, firms with London offices that bill primarily in sterling may exhibit more dramatic reductions in the year-on-year comparisons as a result of the conversion to a dollar figure. As we reported in March, the sterling figure for 2008 for the London office of K&L Gates was £32.6m, a 3.5 per cent increase on 2007’s £31.5m. But after that figure was converted to dollars, it showed a 6.2 per cent fall in turnover. It will not be alone.
The firms that merged with existing UK practices held steady. K&L Gates (which took over midsize London firm Nicholson Graham & Jones) is one such firm.
echert maintained a decent showing, but further afield scaled down its ambitions in other parts of Europe. It has a Munich office, but Frankfurt has always been a strategic aim. That has now been abandoned.
Mayer Brown is another merged practice. Having been in major lateral hire mode in 2007, its 2008 London revenue inched up from £200.7m to £202m.
ayer Brown’s well-publicised management tensions may have an effect longterm. Co-vice chair Paul Maher was the de facto leader of the internationalist faction of the firm. But following Jim Holzhauer’s unexpected retirement, Maher missed out on the top job in April. And although London partners Sean Connolly and Jeremy Clay are involved in Mayer Brown’s management, there are distinct signs that the parts of the US partnership – which have not always been the most hearty supporters of international expansion – are flirting with the notion of retrenchment. It is highly unlikely that Mayer Brown will be in a hurry to make any more international investments soon, let alone strike overseas mergers as it did with Johnson Stokes & Master in Hong Kong.
In contrast, the London outpost of another Chicago-headquartered firm had a less choppy time. While Mayer Brown’s London results were solid at best, Baker & McKenzie saw a $40m (£27.34m) increase in turnover from 2007 to 2008 – from $206m (£140.78m) to $244m (£166.75m). Bakers’ strong revenue saw it snapping at Skadden Arps Slate Meagher & Flom’s heels for the title of the world’s largest law firm – although its financial year ends in June. If anything – and this is a perennial criticism of Bakers – it is underweight in its home jurisdiction. London, meanwhile, remains one of the jewels in Bakers’ crown and one of its rare offices that have developed their own local client base.
Of the organically grown London offices of US firms, Cadwalader and White & Case have had the most publicised difficulties. The strategy that served Cadwalader so well in the US and which it replicated wholesale in London was to focus on capital markets and financial institutions. The recession certainly had an enormous effect on its US practice, where the bulk of its two rounds of redundancies were felt. Globally the firm’s financial results reflected its practice focus, with revenue dropping 13.8 per cent and average profit down 30 per cent. Indeed the London office turnover dropped from £54.1m to £37m last year. However, Cadwalader’s economic woes were dramatically compounded by the exit of a seven-partner team to Paul Hastings, leaving Cadwalader with just four partners in London. The firm has now sent out former chairman Bob Link to mastermind the rebuilding of an office he originally launched 12 years ago.
White & Case’s travails in the States have been replicated in London. In March the firm announced that it was shedding up to 20 per cent of its global partnership plus 200 associates and more than 200 support staff. London, which has always majored on finance and capital markets, claimed its share of the layoffs, with up to 95 jobs going.
Shearman & Sterling has had nowhere near the torrid time that Cadwalader has experienced, but it has suffered several years of drift. Shearman’s stellar German practice has suffered departures. Its 30-lawyer Mannheim office broke away, and several Frankfurt partners also left, mostly for Allen & Overy.
Meanwhile the London office – like at so many US firms – complained of management neglect. But as the credit crunch developed into the recession, Shearman did something radical. It sent out Creighton Condon, one of its top M&A partners, to London to become the firm’s European enforcer. The London office had already merged its corporate and capital markets practices; Condon’s job will be to use that platform effectively.
The overheads of US firms in London are considerable. As The Lawyer reported in March, there is a marked difference between the London locations of the largest-grossing UK firms and their US counterparts. US firms are usually located in the core of the City in some of the capital’s landmark buildings, despite headline rents being around £50 per sq ft at present.
Kirkland & Ellis and Hunton & Williams, for example, are in the Gherkin building. Pillsbury Winthrop Shaw & Pittman, Orrick Herrington & Sutcliffe and Debevoise & Plimpton are all in Tower 42.
In contrast, the magic circle are all situated on the fringe of the City, in areas such as the Barbican, Spitalfields and Fleet Street, or Canary Wharf in Clifford Chance’s case, where rent per sq ft is as much as £10 to £15 less.
Bradley Baker, head of Central London tenant representation at property agent Knight Frank, says this difference in approach comes from the fact that UK firms use their local nous to negotiate better deals.