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BerlinLawyers’ fees are spiralling in Frankfurt while in Berlin businesses are grappling with an economic climate still darkened by the cost of reunification. Richard Tromans and Felicity Clarke report on Germany’s diverse regional scene

FrankfurtGermany’s unchallenged centre for finance is the exception that proves the regionalism rule. It owes its status primarily to the end of World War II, when it became a haven for both German and foreign banks looking to set up shop away from the old capital of Berlin, which had been surrounded by the Soviet army.With the risk of East Germany swallowing up the rest of West Berlin as the Cold War escalated, the West German Government and its allies saw that Frankfurt was the logical and safe place to build a new business centre in a country that needed stability and a great deal of new investment to re-start its economy.While Germany’s corporate giants are generally headquartered elsewhere, they all keep offices in the city. And, being home to the major banks and brokers, for English and American law firms it was the obvious place to launch their German operations.At first, Anglo-Saxon firms opened up small offices there and hired one or two local partners to test the water. Then a surge of activity two years ago saw a raft of Anglo-German mergers and a flood of green-field start-ups, which absorbed almost all the top-tier German lawyers in Frankfurt.Now only the regional offices of the few remaining independent German firms, such as Munich-based Haarmann Hemmelrath, remain locally owned in Frankfurt. Although lateral hiring from the independents is expected to continue in Frankfurt as more US firms enter the market in anticipation of next year’s predicted corporate boom, the battle for lawyers and clients is almost over. With Freshfields Bruckhaus Deringer, Clifford Chance, Linklaters and White & Case leading the charge into Frankfurt with major mergers, the local banks and US investment bank branch offices are well-looked after. Which, for the likes of magic circle firms is right where they want to be in time for next year.The standard line from corporate partners in Frankfurt is: “Although it’s quiet in Frankfurt now, everyone is very excited about next year.”Another sector that everyone is excited about is private equity. Although it has a home in Munich it is also strong in Frankfurt because of the proliferation of banks and funds in the city.The only factors that have the potential to spoil the positive picture of Frankfurt for City firms are the arrival of New York’s white shoe firms, other new arrivals from London and an increasing tension over charge-out rates.Although firms such as Clifford Chance can offer US investment banks in Germany US, UK and German advice, firms such as Sullivan & Cromwell also want to offer their close friends, such as Goldman Sachs, German advice. So far Sullivans has resolutely failed to hire any top German partners to handle the coming major deals, but Shearman & Sterling has a highly regarded practice and Weil Gotshal & Manges and Skadden Arps Slate Meagher & Flom have made important lateral hires in recent months. It is only a matter of time before Sullivans gets in on the act. There is also a whole line of middle-tier US firms that want to offer their US clients on-the-ground German advice, such as McDermott Will & Emery and Altheimer & Gray. Then there is that other new entrant to the Frankfurt market, Norton Rose, which has just hired corporate partner Frank Herring from Linklaters to speed up the growth of its new German practice. Such moves will only increase in pace as the year develops.If these and the white shoe firms all manage to open quality German practices in Frankfurt by the end of the year it might dampen the party for the City firms already set up in Frankfurt.The other issue for City firms is that having merged with large German firms with full service practices, lawyers back in London want German partners to raise their charge-out rates to keep profits healthy.The average German partner charges dm600 an hour or around £200. City firms want this to rise to dm900 or around £300, a price that lawyers with a predominantly mittelstand – the privately-owned, mid-size companies that dominate the economic landscape – client base will find hard to get away with.This battle between local and international rates will be brought into sharper relief in Frankfurt than in other German cities because of the high number of international, and particularly New York-based, banks there that are used to paying international charge-out rates.It is widely predicted that some German partners, whose clients perhaps did not appreciate that becoming part of international firms meant a steep fee hike, might be forced to move out to form quality boutiques. But this may yet be a little way off. Almost all German partners in Frankfurt want to hang on to their positions in international firms to reap the rich rewards from the hoped-for corporate boom.

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