Eye of the storm
For lawyers working in banking, the bad news just keeps coming. Ever since the credit crunch gripped the financial services sector in August 2007 it has been a worrying time for anyone in finance, but there is now no doubt that the dramatic escalation of the crisis facing the industry, thanks to the collapse of Lehman Brothers in September, has raised the stakes considerably.Before Lehman, lawyers, particularly those working in the central legal teams, were seen as being among the least vulnerable staff in banking. Sure there were widespread claims that lawyers working in badly-hit transactional departments and legally-trained staff working on document management had been hit. But the general consensus was that, in an environment in which regulation, compliance and litigation had become greater issues, in-house legal teams were viewed as some of the most secure jobs.
Until recently a career in-house seemed to promise great rewards and job security for lawyers. Leigh Jackson finds that such expectations are a thing of the past
For lawyers working in banking, the bad news just keeps coming. Ever since the credit crunch gripped the financial services sector in August 2007 it has been a worrying time for anyone in finance, but there is now no doubt that the dramatic escalation of the crisis facing the industry, thanks to the collapse of Lehman Brothers in September, has raised the stakes considerably.
Before Lehman, lawyers, particularly those working in the central legal teams, were seen as being among the least vulnerable staff in banking. Sure there were widespread claims that lawyers working in badly-hit transactional departments and legally-trained staff working on document management had been hit. But the general consensus was that, in an environment in which regulation, compliance and litigation had become greater issues, in-house legal teams were viewed as some of the most secure jobs.
Lehman manifestly changed the situation, with a series of fire-sales, collapses and recapitalisation, now making it clear that the financial services sector is set to contract rapidly. It has become a mainstream prediction that the industry will shed well over 150,000 jobs globally, while many commentators expect the City to shed around 50,000 finance positions out of roughly 300,000.
In November alone, Citi, Morgan Stanley and Goldman Sachs have all announced front-office cuts while in-house lawyers Nomura, Barclays Capital and, obviously, Lehman and Bear Stearns have also shed jobs.
And while the investment banking sector has been hit hard, retail-driven banks such as Royal Bank of Scotland and the soon-to-merge Lloyds TSB/HBOS have confirmed that they will lay off staff as they seek to eventually repay multibillion-pound injections from the UK taxpayer.
With the industry contracting so sharply, it will surely support fewer legal jobs, even if lawyers are less exposed than their commercial counterparts in redundancy rounds.
Nevertheless, opinions vary about how deep the impact will be. Many large banks nursing heavy losses are forecasting overall staffing falls of 10%-20%, though others like HSBC, JPMorgan and Standard Chartered have suffered far less than their rivals.
The debate concerning lawyers is whether legal teams, which can number hundreds of lawyers at top banks, will be proportionately hit by those 10%-20% cuts in staffing levels.
A general counsel of a leading global bank, who asked to remain anonymous, says that while job losses will differ across the board, the cuts were unlikely to be proportionate to those suffered in front-office positions.
“It will vary from organisation to organisation – take a look at the situation with Lehman,” he comments. “Some are still working on the unravelling of the company so for the meantime their positions are safe.
“It is hard to anticipate what will happen, but banks may look to redeploy members of staff internally and then retrain them to take up different legal roles within the company.”
The view was shared by a senior in-house lawyer – an employee of one of the banks most affected by the financial turmoil – who also claimed that the legal cuts would be less severe than those facing front-line bankers.
“There may be some cuts. There will be a few but, given that most legal areas are leanly staffed they will not be cut as deep,” the senior in-house lawyer says.
“There is now an increased focus on risk management and pressure for legal teams to cut external spends so some lawyers may well be needed. There may be hiring freezes in the near future rather than deep cuts.”
However, some believe redundancies within legal teams could be closely correlated to the cuts already made, which would suggest that some in-house teams could face more than 10% cuts in staffing levels.
A former Nomura lawyer, now in private practice, says: “It depends on the bank and the business area. Citi has lost 75,000, and inevitably this may affect a proportionate number in the in-house team.”
He adds: “If the business team is cut in lines where there is little work there will be nothing for the lawyers to do. So, to some extent, the losses are likely to filter down.”
With the future of the market difficult to predict, the morale among the majority of banking lawyers is currently low. As the extent of the losses are hard to predict, many in-house lawyers are fearing for their future.
One senior in-house lawyer at a major bank says fear of redundancy has worsened by the increased likelihood that the turmoil will affect pay.
“People are pretty glum,” the lawyer says. “A lot of lawyers have lower salaries and higher bonuses and have found that their wages have dropped. This situation may continue as the markets are quite bleak.”
But some have been comforted by the fact that surviving an initial round of redundancies may have strengthened their long-term job prospects.
Ricky Mui, legal director at recruitment consultants Robert Walters, says: “With banking lawyers that have been made redundant, the morale is not the greatest. However, the banking lawyers that have retained their jobs appear to be at least motivated by the fact that they have job security and, furthermore, their responsibilities may have increased to keep them busy as a result of cost-cutting measures.”
The jump to private practice
With the future uncertain, some banking lawyers have already decided that the next step is to head for the relatively safe haven of private practice.
A handful of high-profile in-house banking lawyers have already made the move into private practice, with Peter Castellon moving from Citibank to Baker & McKenzie in March and his colleague Rafal Gawlowski poised to depart for Latham & Watkins’ New York office in January 2009.
One partner who recently moved from a bank says more in-house lawyers are considering similar moves.
“In-housers must be feeling insecure at the moment and rather than waiting around they are taking a proactive approach, seeing what opportunities are available and forming an insurance policy,” he comments. “There is so much uncertainty that no-one feels safe right now.”
Yet such as move will be difficult for all but the top performers. Sophie Spencer, a recruitment consultant with Barclay Simpson, says fewer vacancies in the market will make it tough to find new positions.
Spencer says: “It is tough to find a new legal role in investment banking at the moment and there are people sitting at home still looking to find work. There are certainly fewer vacancies than there were six months ago and there is a lot more competition.”
She adds: “There are still positions out there for really good candidates but there is so much competition. There is not a complete freeze.”
However, there is some hope that while the job market is looking bleak at the moment, things may improve at the turn of the year.
Mui comments: “The job market will slow down towards end of 2008 and gradually pick up towards the start of 2009.
“However, we envisage there to be a surplus of quality candidates on the market applying for fewer positions within the financial sector, which means that competition for jobs will be much fiercer with clients hiring on a more critical needs-only basis to ensure that the candidates exactly match their complete requirements.”
Bank cuts since Lehman Brothers
This premium content is reserved for
Legal Week Subscribers.
A PREMIUM SUBSCRIPTION PROVIDES:
- Trusted insight, news and analysis from the UK and across the globe
- Connections to senior business lawyers within the leading law firms and legal departments
- Optimized access on all of your devices: desktop, tablet and mobile
- Complete access to the site's full archive of more than 56,000 articles
Already have an account? Sign In Now