With most US law firms experiencing something of a slowdown in the London market following the instability around the referendum on the UK’s membership of the EU, and subsequent Leave victory, questions remain around whether investment will keep coming or be held back to focus on other markets.
Six US firms have doubled in size in the City between 2010 and 2015: Milbank, Tweed, Hadley & McCloy; Simpson Thacher & Bartlett; Akin Gump Strauss Hauer & Feld; Paul Hastings; Cadwalader, Wickersham & Taft and King & Spalding.
Then there are the likes of Latham & Watkins, White & Case and Shearman & Sterling, which arguably have the most rounded and successful London offices of the US firms, and between them added around 100 lawyers last year. However, one London managing partner of a US firm said: ‘US partners don’t like subsidising other offices’ and warned ‘problems will arise if things don’t start to pick up’.
The list of worries in the market centres on two points. The first is income, and fears the weakening of the British pound against the US dollar will lead to a sharp fall in London revenue for US firms. The second involves costs, with many US firms having recently committed to office expansion to fulfil what seemed like an insatiable appetite for growth, and extended New York pay rises to London. That managing partner added: ‘Firms that made crazy increases to their NQ salaries will have a problem now, as they’ve completely stepped outside the London market and as a result their cost base is not a London cost base.’
The counter arguments to this is that many US firms use London as a European base for US clients, which are billed in US dollars, and are well hedged against the US market whereas Magic Circle firms are largely centred around the UK and continental Europe.
White & Case London executive partner Oliver Brettle (pictured) told Legal Business: ‘We had a very successful 2015 building on several years of success before that and have proven it’s possible to have consistent success in London. We’ve got to ride out this storm and this year’s events will be seen to be an aberration. London has been a great market for White & Case, Latham & Watkins and Shearman & Sterling. The Magic Circle firms have also increased their London heft relative to the rest of their firms, so we’ve all had successful times in London. No one runs a firm based on half a year’s results.’
Nonetheless, even firms as committed to the London market as White & Case, which has pledged to employ 500 lawyers in the City by 2020, are being impacted. Indeed, many US firms have held off on their lateral recruitment plans.
Brettle added: ‘The main issue is the uncertainty the market is currently experiencing. Some aspects of our business will do well, counter-cyclical work for example, but that isn’t usually as voluminous or as remunerative as deal work. If M&A continues downward, UK capital markets continue to be on hold, and the risk contagion spreads to the rest of Europe, it will be hard for any firm in London to have a ‘good’ year. However, if politicians realise that uncertainty is going to restrict the markets that produce the tax revenues that keep the UK going, let’s hope that the way forward can be found to handle things in a way which gets certainty in the short term. Uncertainty is the shadow here and so we need the politicians now to try and shorten that shadow.’
Shearman & Sterling EMEA managing partner Nick Buckworth told Legal Business: ‘Even if there were to be some [client] movement to the continent, for our business we’re well positioned to provide seamless support to them. Even if they do move, it’s a question of why. I don’t think there’s going to be a sudden rush by the key deal makers to live in [continental] Europe. Personally I think London will ride the wave. Our senior management will be listening to what we have to say. There will be no knee-jerk reaction from them. We’ve got a balanced, lean and efficient business in Europe so no reason for us to rush to make any changes here. We want people to feel comfortable and confident they have a long term future here.’
However, the Magic Circle firms are also set to experience difficulty, firstly because of concerns in their main European market, but also over the sharp currency shift that will make US operations even more expensive. With many UK firms still struggling to break New York, and the big four London elite firms all having committed in the run-up to the referendum to Cravath, Swaine & Moore’s associate pay rise beginning at $180,000 for first year associates, those costs will increase steeply.
Freshfields Bruckhaus Deringer and Allen & Overy have both confirmed that they have committed to the pay rises. Meeting the $180,000 rate would have cost Magic Circle firms around £120,000 a week, a figure that has risen to £136,000 following the collapse in sterling after Brexit. Clifford Chance and Linklaters are yet to respond to comment.
Meanwhile, a post-Brexit vote Shadow Cabinet rebellion has included the resignation of two top legal figures in the Labour Party – Shadow Lord Chancellor Lord Falconer and Shadow Attorney General Karl Turner.
tom.moore@legalease.co.uk