Law Firms and the Crisis - Who Wins?

Image via WikipediaThe dawn of a new day brings news of yet another billion-dollar rescue package for a corporation in credit-crunch-crisis mode. Not surprisingly, law firms - international, regional, local - are rushing to score a piece of the tumultuous transactional work that abounds, for now. Who is to benefit from Dexia bailout in Belgium, Fortis bailout in Netherlands, Hypo in Germany and Rennaissance in Russia? Click below to find out:

From AmLaw - Firms of All Kinds Reap Rewards from Global Market Turmoil
http://amlawdaily.typepad.com/amlawdaily/2008/09/firms-of-all-ki.html

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Heller Ehrman (1890-2008)

Heller Ehrman was founded in 1890, rode through the 1906 San Francisco earthquake (in the aftermath of which the nascent client Wells Fargo Bank set up a temporary headquarters at the home of founding partner Emanuel Heller), helped arrange financing for the Golden Gate Bridge, the Hoover Dam, and the Oakland Bay Bridge, and in more recent years took a pro bono case to the US Supreme Court that established the right of conscientious objection during the Vietnam War, took Levi Strauss public, and represented plaintiffs overturning California's same-sex marriage ban.

But it's over.

Per Adam Smith. Esq. "We don't like to talk about it, none of us do, not me, not senior partners, not bankers or consultants to the industry, but the stark, glaring reality is that law firms are fragile institutions. Brobeck, Coudert, Heller, Shea & Gould, among the firms that didn't deserve it, and Finley Kumble and Myerson & Kuhn among the firms that did."  

What went wrong? 

Law firms say that they understand that "Our assets go down in the elevator every night."   Take that bromide seriously.  You must give people a persuasive reason to come back "home" every Monday morning. 

Back to Heller.  What finally went wrong?

It's the same phenomenon, actually, that we've seen on Wall Street in the last few weeks: A failure of confidence. There doesn't need to be anything wrong with Heller, or Morgan Stanley, Goldman Sachs, or Merrill Lynch, for people and the market at large to perceive there's something wrong with any of those firms. It's the run on the bank mentality.

In law firm land, this is how the breakdown of credibility (the "character" of the firm) goes:

• A few key partners leave
• Taking a few key clients with them
• Which makes other partners wonder
• And start looking around
• Finding, in this very liquid lateral partner market, ample opportunities
• Which some take advantage of
• Taking away more clients
• Making more partners, and associates connected to them, thinking about the door
• Leaving only the least mobile people with the smallest books of business at the firm
• And the vicious cycle has kicked in, with almost no meaningful chance of its being reversed.

Enhanced Law Firm Role After Meltdown?

AmLaw notes that Wall Street Bailout Could Enhance, Expand Role of Law Firms.

While Congress mulls the merits of a proposed $700 billion plan to prevent a wider economic meltdown, many are wondering what the calls for more regulation and increased transparency mean for corporate governance. Alfred Carlton, Jr., a partner at Raleigh's Allen and Pinnix and a past president of the American Bar Association, says it could lead to an expanded role for lawyers.

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The Credit Meltdown SUMMARY

Want a quick way to understand what happened and what people are thinking? There is a summary here of quotes, thoughts, and events:

click: Something is Not Right

JP Morgan

Image via WikipediaFortune cover story:

It was the second week of October 2006. William King, then J.P. Morgan's chief of securitized products, was vacationing in Rwanda, visiting remote coffee plantations he was helping to finance. One evening CEO Jamie Dimon tracked him down to fire a red alert. "Billy, I really want you to watch out for subprime!" Dimon's voice crackled over King's hotel phone. "We need to sell a lot of our positions. I've seen it before. This stuff could go up in smoke!"

A classic Dimon manic moment, the call is significant for two reasons. First, it marked the beginning of a remarkable strategic shift that helped J.P. Morgan, virtually alone among the big diversified banks, sidestep the worst of a historic credit crisis.

Dimon and his team are on top today because they took a daring stance at the height of the credit bubble. J.P. Morgan mostly exited the business of securitizing subprime mortgages when it was still booming, shunning now notorious instruments such as SIVs (structured investment vehicles) and CDOs (collateralized debt obligations). With the notable exception of Goldman Sachs, J.P. Morgan's main competitors - including Citigroup, UBS, and Merrill Lynch - ignored the danger signs and piled into those products in a feeding frenzy.

Remember the October 2006 "ditch subprime" call? What set Dimon off?

Every month, recall, Dimon reviews every aspect of the business in great detail ("Appendix 3" is not a joke). And in October 2006, during the regular monthly review of the retail bank's operations, the head of mortgage servicing said that late payments on subprime loans were rising at an alarming rate. Moreover, data showed that loans originated by competitors like First Franklin and American Home were performing three times worse than J.P. Morgan's subprime mortgages. "We concluded that underwriting standards were deteriorating across the industry," says Dimon.

But what about the CDO's the bank still held? Weren't they all AAA rated?

Yes, they were, but the price of credit default swaps on even AAA-rated CDO's told a different story:

Winters and Black [investment bank co-heads] saw that once they bought credit default swaps to hedge the AAA CDO paper J.P. Morgan would have to hold, the fees from creating CDOs would vanish. "We saw no profit, and lots of risk, in holding subprime paper on our balance sheet," says Winters.

The combined weight of that data triggered Dimon's call to King in Africa. "It was Jamie who saw all the pieces," says Winters.

Not only did Dimon instruct the bank to start selling its CDO's (including more than $12-billion subprime mortgages that JP Morgan had originated), he took action across the entire institution. Trading desks were ordered to dump loans on their books, and to stop making markets in subprime loans for customers. The private bank, that manages money for wealthy clients, started advising them to sell. The corporate treasury department started hedging and placing bets that credit spreads would widen (profiting by hundreds of millions of dollars when that turned out to be precisely the case).

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Orrick partner's take on Wall Street mess

Image by Getty Images via Daylife

I tried to paraphase a bit, but this one is really worth reading in full here.

AmLaw Daily - Work, Jobs Drying Up for Firms in Wake of Wall Street Mess, Says Orrick Lawyer

Alan Pomerantz, partner in charge of the New York real estate practice group at Orrick, Herrington & Sutcliffe and a former chair of the global property and finance practice group at Weil, Gotshal & Manges talks about how law firms will be affected by the current economic crisis.

So, what are you hearing?

What I hear in the marketplace that's really disquieting is nobody says, "Well, we finally got the last piece scrapped out." You're not hearing that at law firms or in business. What they're all saying is, "Who do you think is next?" It's going to kill lawyers. It already has.

What's going on at large law firms right now?

Everyone is nervous. And it's not a good thing to be a lawyer and to be nervous.

How are firms planning to absorb new law school graduates they've just taken on?

It's going to accelerate a firm's decision-making [process] on people. It used to be, "Well, he or she is doing good work, so let's keep them around a bit longer," but now it's, "Let's get rid of them."

Any chance we'll see some sort of market recovery anytime soon?

Lehman's failure with such an extraordinary amount of debt indicates that type of structure doesn't work. Mark Twain once said "When a cat sits on a hot stove, not only won't he sit on the hot stove again, he won't sit on a cold stove either."
What we're seeing is that there is some pressure if a bank is going to securitize debt, they're going to have to keep a first-loss piece on their books, which is going to cut everything down. . . I think that what Lehman was, was that whenever you wanted to buy something in real estate or finance it, they were always at the table. . . And now the merry-go-round has stopped and they're running out of chairs.

Is this the worst you've ever seen it?

Not yet. I've been through some crunches. And what's different here is that nobody truly understands what's happening. No one truly understands how much leverage there is in the system. The issues of why one needs to save Bear Stearns and Lehman is not only the real estate investments that they made, but the risks and counterparty risks that they have on their books, which are quite significant. You can have swaps and synthetic credit risks on one asset that are ten times the value of that asset. I don't think the world--or the bankers for that matter--understand that.

Do you think we've reached the nadir today?

Right now you can't tell someone what their risk is! You just don't know. That's the problem. It's significantly different [from anything we've faced before]. When we did all the restructurings in the nineties, you could at least get your lenders in a room. Now you don't know who your lenders are. That's a material difference. My thinking is that you need to have a catastrophic event so that the buyers will say, "Okay, now things are at the bottom." But I don't think we're there yet.

Mayer Brown and Heller Ehrman Merger Called Off

Image via WikipediaMayer Brown Calls Off Merger Talks with Heller Ehrman

Discussion of a Mayer Brown-Heller merger began days after Heller's talks with Baker & McKenzie ended. Heller has been faced with major partner defections.

"Heller is a fine firm with outstanding lawyers," Mayer Brown said. "Like us, they have a long heritage of excellence in their work and service to clients. A merger with them would have offered potential benefits for both firms and our clients." Mayer said that client and practice conflicts could not be resolved.

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Hunton Builds Africa Presence

Image via WikipediaHunton & Williams Strengthens Ties to Africa - AmLaw Daily

Hunton & Williams has signed a memorandum of understanding with Mkono & Co. Advocates, East Africa's largest law firm.

"Recent events prove there is big money to be made in Africa for dealmaking lawyers. Late last year a series of donors, including the World Bank and the Blackstone Group worked with the Ugandan government to start construction on a $870 million-plus hydroelectric dam there.
Chadbourne represented much of the private equity behind the deal, Mizrahi says; Beardsworth and Hunton represented the Ugandan government in the same project. Right now, Chadbourne is advising the Moroccan government's state-owned electric company as it seeks financing for financing a 1,300-megawatt power plan that is expected to cost $2 billion, Mizrahi says.

It is deals of that size that Beardsworth envisions Hunton landing thanks to its new alliance with Tanzania-based Mkono."

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News Detail

Image via WikipediaNews Detail: "Jones Lang LaSalle Arranges 20,476 Square Foot, $8 Million Lease at 800 Wilshire in Downtown Los Angeles

Law Firm Signs Long-Term Lease at Newly Renovated Class A Building

Jones Lang LaSalle announced today that Los Angeles-based The Ratkovich Company, has executed a long-term lease agreement with Clark & Trevithick to renew their 20,476 square feet of office space on the 12th and 13th floors of the 225,000 square foot 800 Wilshire in downtown Los Angeles. The Jones Lang LaSalle team of Lisa St. John, James Malone and Jim Walker represented The Ratkovich Company and Prudential Real Estate Investors in this twelve-year lease transaction valued in excess of $6.8 million. Clark & Trevithick was represented by Brian Ulf and Cushman & Wakefield.

“The first class renovations to 800 Wilshire’s building and lobby were completed in the summer of this year,” said Managing Director, Lisa St. John. “Clark & Trevithick chose to remain in this exquisite project, which offers the most efficient parking in the city, as well as an exclusive and personalized environment that cannot be accommodated by larger buildings.”

800 Wilshire is a Class A sixteen-story, 225,000 square foot boutique office building that commands a strategic corner at the intersection of Wilshire Boulevard and Flower Street."

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Legal Outsourcing Gets Green Light from ABA

"U.S. lawyers are free to outsource legal work, including to lawyers or nonlawyers outside the country, if they adhere to ethics rules requiring competence, supervision, protection of confidential information, reasonable fees and not assisting unauthorized practice of law."

Those are the conclusions of the American Bar Association Standing Committee on Ethics and Professional Responsibility. Ethics Opinion 08-451 details obligations of lawyers and firms that outsource. According to their press release: "Outsourcing can reduce client costs and enable small firms to provide labor intensive services such as large, discovery intense litigation, even though the firms might not maintain sufficient ongoing staff to handle the work"

Minimum Standards

Outsourcing lawyers should conduct reference checks and background investigations of lawyer or nonlawyer service providers and any intermediaries. They may also wish to interview principal lawyers on a project, assessing their educational background, and evaluate the quality and character of any employees likely to access client information, review security systems, and even visit the premises of the service provider.

Outsourcing to Foreign Countries

The outsourcing lawyer should determine if the legal education system in that country is similar to the U.S. and if regulatory systems "incorporate equivalent core ethics principles and effective disciplinary enforcement systems." The attorney should also determine if the foreign legal system protects client confidentiality and provides effective remedies to the client if disputes arise.

Client Consent

Depending on the level of supervision, it might be necessary to obtain informed client consent. Informed consent also may be required to reveal confidential information. Written confidentiality agreements are “strongly advisable.”

Fees

Outsourcing lawyers may pass along to the client the costs of using the service provider, including a reasonable overhead, but “no markup is permitted.”


The full opinion is available at http://www.abanet.org/cpr.

Akerman Senterfitt and Wolf Block deal off

The Philadelphia Inquirer reports:

A planned merger between Wolf Block and Akerman Senterfitt has been called off, "derailed by a struggling economy and stagnant revenue that raised the risk to unacceptable levels", participants in the negotiations said.

INQUIRER STAFF WRITER

Philadelphia law firm calls off merger

How Long to Move Your Office?

Image via Wikipedia How long does it take to go through the steps involved in order to relocate your business to a new location. It should be pretty easy. One or two months should be enough, right? Just moving a few desk and some boxes.

In truth, it involves a good deal more. A tenant must evaluate their needs and perform a search of available properties, before then touring, negotiating, executing, and constructing the space. Then the move (could start to feel a bit harder than expected).

Timing - Some Rules of Thumb

Small Tenant 1,000 to 2,500 sf 2-3 months
Average Tenant 3,000 to 6,000 sf 4-6 months
Large Tenant 7,000 to 14,000 sf 6-9 months
Full Floor Tenant 15,000 to 25,000 sf 12+ months
Multifloor Tenant 26,000 to 75,000 sf 18-24 months
Lead Tenants 76,000 and up 24-48 months