Switzerland’s law firms have been caught up in the financial maelstrom affecting its banks in the past year but, finds Sofia Lind, they are keeping an optimistic outlook
In a country renowned for its banking prowess, the financial turmoil of the last months has been keenly felt in Switzerland. While the financial haven is proving less than rosy for many bankers with two of its major institutions, UBS and Credit Suisse, both caught up in the financial storm, Switzerland’s legal elite has a more positive story to tell.
For many of the country’s main firms, the crisis has meant an inflow of lucrative instructions, landing roles in the wake of the collapse of Lehman Brothers – with its plentiful Swiss creditors – for example, or on one of the many reorganisations within Swiss banks.
Several of Switzerland’s largest firms, including Lenz & Staehelin, Baer & Karrer, Homburger and Schellenberg Wittmer, credit the banking crisis with a major upturn in work in the region.
“It is clear that last year was dominated by the financial crisis. It has taken a lot of our time and made us quite busy,” says Homburger managing partner and co-head of M&A Heinz Schaerer.
And while the shift in focus of demand from much of the big-ticket M&A to financial litigation and restructuring is still notable, many observe the effects are less apparent than in other jurisdictions.
Vischer’s head of IT and IP, Rolf auf der Maur, says: “We are less affected than other jurisdictions. Our firm has been very busy throughout the year although the topics have shifted a little. There is less on the M&A and private equity side and more restructuring work.”
And, unlike the pattern in the UK, the sentiment appears to be echoed down the ranks, with several of the less prominent firms on the banking front also sharing in the upturn in mandates.
Patrick Sommer, managing partner of 50-lawyer CMS network firm CMS von Erlach Henrici, claims his firm has maintained 2007 workflow levels throughout the last year, and, unlike many US and UK firms, is not expecting to see profits unduly hit following the 31 December financial year-end.
“We had thought that we would feel the effect of the credit crunch already but having also spoken to colleagues at other firms I do not get that feeling. Most Swiss firms offer a full service rather than relying on big-ticket transactions,” he says.
UBS in the headlines
For banking lawyers in Switzerland, UBS dominated the headlines for much of 2008. And while much of the international attention focused on what the bank had done wrong, locally many lawyers feel sympathy for an institution which has dominated their billing sheets for so long.
One managing partner says: “UBS was headline news for a long time. With the aid package it received it should be safe again. However, there has been much debate here about the pressure from the US and Germany in investigating UBS officials, which many of us feel was both unexpected and unpleasant.”
With Credit Suisse another major casualty of the crisis, some are also beginning to question the global banking model, preferring a protectionist model to what they perceive has been an over-reliance on foreign investments and sovereign wealth funds.
Martin Hess (pictured), co-head of the financial services department at Wenger & Vieli, comments: “Many local banks have not suffered much, they are standing firm in a stable position, but those that really went into global investment banking are suffering. It was unexpected by many that Swiss banks should need external funding – something that UBS is now relying on to some extent.”
Banking clients cutting back
Although it is clear that advisers will be busy in the short term, whether the upturn in work as a result of the financial turmoil will be sustained is open for debate.
Baer & Karrer’s managing partner Eric Stupp is optimistic. With increasing numbers of banks having to reorganise their in-house legal departments as a result of cutbacks, he predicts banks will increasingly turn to external legal advice in the future.
He puts it simply: “Banks have made cutbacks across the board to save money. Legal departments have suffered so they need independent advice.”
CMS’ Sommer adds: “Looking at the banking crisis as a whole, it will take a long time to clean it up and legal advice will be required. Right now there are more important areas to reign in than legal support.”
However, not everyone is as positive. Wenger & Vieli’s Hess reports a noticeable change in the attitudes of banks going forward. “What you see is that Swiss banks have narrowed the budget for external lawyers. New projects and big ideas are also on hold,” he says.
However, he points to a major difference between Swiss clients and their large international counterparts. While Swiss clients are increasingly turning to their own legal teams for advice, and only consulting externally on complex matters in a bid to drive down costs, multinational clients have sustained the flow of work externally. But this comes at a cost: they are demanding increasingly large discounts.
This is a view shared by Leonz Meyer, managing partner of Schmid Eversheds, who believes international clients are more likely to scrutinise the bill for charges that could be avoided.
“As a young firm we entered with modest rates. We still have rates considerably lower than our competitors, which is an advantage in bad times. When a client needs assistance for financial recovery he cares more about fees. This means that although demand increases in certain areas, we need to be more efficient and keep fees down.”
Schmid is one of a group of recently emerged firms in the Swiss market, having been established four years ago before announcing a tie-up with UK giant Eversheds at the beginning of 2008. The growth of the firm, strengthened by the Eversheds deal, meant that the firm increased its revenues by 50% in 2008, according to Meyer. Of this he estimates that 20% came from international referrals from the Eversheds International network, while some of the growth came from increased visibility also in the local market.
“It seems after the tie-up our normal Swiss clients trust us to do more bulky work,” says Meyer. “We also grew considerably, from 14-15 lawyers to 25, partly through new hires and partly through our new office in Geneva, which officially launches in February.”
Several of Switzerland’s local firms have spent serious energy over the last year growing their head counts, with the cantonal structure of the country enforcing the need for a widespread local presence more so than many other jurisdictions.
While many firms have achieved this through lateral hires, a significant proportion have gone down the route of a merger. This includes Bratschi Wiederkehr & Buob, which finalised a three-way merger at the beginning of 2008, while, with effect from the beginning of 2009, Kellerhals Hess has tied up with Basel-based Christen Rickli Partner to form 70-lawyer practice Kellerhals. Kellerhals Hess had a presence in Zurich and Bern prior to the combination.
“Mid-sized firms, which means between 10-20 lawyers, have set up mergers in order to increase head count. This could have benefits and downsides as you then need to spend efforts combining different cultures,” says Hess.
“I am not persuaded it will have a big effect on the market as the business in a country like Switzerland, which is segregated in federations, is local. If you want to attract the small to mid-sized companies as clients you want to stay local,” he adds.
Newly-formed Kellerhals is now considering adopting an Aktiengesellschaft (AG) or ‘stock corporation’ structure, similar to a limited company structure in the UK. A number of Swiss firms are now opting to take this route since it became possible in 2007, with larger firms including Baer & Karrer and Homburger already adopting this status with some success. Vischer also has plans to convert this year – with auf der Maur set to step down as practice group head for a place on the board – while Schmid Eversheds is set to take the step towards stock corporation conversion in February.
Meyer says: “The option to create share corporations has been allowed for around a year-and-a-half. Two or three of the bigger firms tried it and it proved successful. The main advantage is that of reduced liability for individual partners while there can in some cases also be tax advantages.”
But while local mergers are still apparent, competition is still fierce for new international entrants to the market.
“Among the local firms, there is a very fierce and tough competition. You cannot charge London rates in Switzerland. What I as a partner charge clients, a junior in London would charge,” Hess points out.
Instead, many of the UK magic circle and Wall Street firms with major Swiss clients including Novartis, Nestle, UBS and Credit Suisse all choose to service their clients from offices outside the country.
And this does not look like something set to change – unless Switzerland performs a volte face and joins the European Union.
Even Schmid Eversheds’ Meyer concedes: “There are two other main international players in Switzerland. Baker & McKenzie has been here for ages with a perfect track record, while CMS also has good recommendations. We have yet to establish – this is our chance.”
A tougher 2009
However, in common with most other law firms, Switzerland’s independents are feeling cautious about the state of the market to come.
“Firms that offer a full range of services and have a good cost balance and remain conservative in their spending will be well-positioned in 2009. However, nobody is denying that it would be over-optimistic to think that there could not be an impact next year,” says Sommer.
Stupp adds optimistically: “I don’t expect so many larger deals this year. What we see is that a number of larger transactions don’t go through. I think, however, that in these market conditions things can change very fast. As soon as the mood changes a little, companies will stop holding back. As soon as we see the stock market going up there will be a run to buy.”
What is clear is that with the failure of major international financial institutions having global repercussions, it could prove difficult for Switzerland to remain an island in the storm entering 2009. It is certainly not something they will bet the bank on.
Key deals in the Swiss market during 2008