When investment banks feel a distinct chill in the air magic circle firms cannot expect to escape unscathed
Observers of City life cannot have helped noticing that the chill affecting solicitors’ investment banking mates shows no signs of abating.
Many of them have already laid off 10% of their staff to cope with this year’s slowdown in M&A and capital markets work, the expectation in banking circles is that the axe is going to fall for a second time if the autumn does not deliver more deals.
A recent report by Morgan Stanley spells it out: M&A activity is down 51% annually, while a recent upturn in equity issuance has been offset by the near collapse of the more lucrative IPO market. Although less exposed, the picture for corporate solicitors looks uninspiring. A glance at our deal week tables over the last three months shows little sign of the market picking up.
There have been a few eye-catching transactions, and only the uncharitable could fail to concede
that Herbert Smith managed to appear on quite a few of them. But the closest the City came to market moving deals – such as Halifax/Bank of Scotland or Dresdner/Allianz – look more defensive than agenda-setting.
That is not to over-egg the pudding. As Slaughter and May’s Stephen Cooke puts it: “This is not 1991 where we just dropped off a cliff. This is more like 1997 – and we thought that was busy at the time.” And the consensus view is that the middle-tier work is holding up considerably better than huge deals.
But it is hard to escape the conclusion that the
top firms’ position looks less commanding compared to smaller rivals.
Having expensively bulked up their assistant numbers to peddle the strength in depth line, a sustained period without regular cross-border deals must bring some pain.
Likewise, the ability of the magic circle, which with the notable exception of Slaughters have presided over the death of the corporate generalist, to redeploy their teams to cope with shifts in the market looks suspect.
Cooke points out that firms can find work for their expensively hired assistants by refocusing further down the market.
A charitable view, perhaps, given that there are plenty of firms who do not share the reputation for client care you would extend to a Slaughters, Macfarlanes or even a Pinsent Curtis Biddle.
Or to put it another way: top firms are becoming more like investment banks in structure, culture and client relations. The hope that they can entirely escape the pressures afflicting their banking chums is wishful thinking.
