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Regular advisers to Lehman Brothers could lose millions of pounds in legal fees following the shock demise of one of Wall Street’s leading investment houses.

City firms including Ashurst, Allen & Overy (A&O), Linklaters, Freshfields Bruckhaus Deringer and Lovells all sit on Lehman’s UK legal panel, with the bank estimated to spend some £40m in legal fees globally each year.

Data from Mergermarket shows that Ashurst, Linklaters and Herbert Smith took the lion’s share of Lehman’s work on European M&A deals over the last year, with roles on deals including Carlsberg’s takeover of Scottish & Newcastle and Alcoa’s acquisition of a stake in Rio Tinto.

Similarly, in the US, Simpson Thacher & Bartlett and the already troubled Cadwalader Wickersham & Taft have close links to the 158-year old investment house.

While several firms have since won lucrative roles relating to the bankruptcy, it leaves others exposed at a time of already decreased activity in both the finance and corporate markets. In addition to a lack of future mandates from the bank, the firms look set to lose fees for work they are already owed.

Insolvency partners said law firms would be treated like any other creditor, meaning that if they wanted to chase unpaid fees they would have to put in a formal claim – a process that could take years.

One finance partner admitted: “We are one of the panel firms and I am sure they owe us money which we will not be getting back any time soon. It is always a risk your client will go under, but it was a shock for Lehman.”

Another added: “No-one wants to lose a big client like that, do they? Trying to get the unpaid fees from them is a mug’s game. The big question is what is going to happen next. It is pretty bloody out there.”

Advisers to Merrill Lynch are now also attempting to position themselves in the wake of its $50bn (£28bn) rescue deal with Bank of America, which was put together over the weekend.

However, for the time being it is the in-house legal team at Lehman that is suffering, with around 50 lawyers in the bank’s UK legal team expected to be hunting for new jobs. As reported on legalweek.com on Tuesday (16 September), specialist in-house recruiters are already working in and around the bank’s Canary Wharf offices amid widespread expectations that Lehman’s 5,000 UK staff will lose their jobs.

The bank’s overall general counsel, Thomas Russo, who until recently led a team of 145 lawyers, has been cited as one of the US’s highest paid chief legal officers.

The fate of both banks has left the financial world reeling with many predicting a complete change in the way investment banks operate and how law firms manage their financial services clients.

Confidence has been further eroded by the attempts of AIG to shore up its finances, which have come under intense pressure.

Lyndon Norley, head of Kirkland & Ellis’s European restructuring group, said: “The real issue is how much contagion Lehman has in the market. You have the feeling that this is not going to be the last.”

One magic circle finance partner commented: “We are seeing some extraordinary things. It could change the whole model of investment banking and will very likely change people’s appetite for easy money.”

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