Clifford Chance (CC) must have been punching the air as news emerged last week that Cadwalader Wickersham & Taft had become the first premier-division US firm to announce job cuts in response to the prolonged credit market turmoil.
After all, CC¹s decision to make six structured finance lawyers redundant in November looked like a calculated risk for a firm whose reputation with Manhattan recruiters had only just recovered after the troubled marriage to Rogers & Wells. With Cadwalader making more than five times that number redundant, CC is off the hook, but the wider legal community will now be focused on the scope for more cuts in the US and beyond.
The first thing to note is that no economic cycle is ever the same and, accordingly, the current spate of job losses at US law firms are happening in very different areas to those that swept the US in 2001-02. As the tech bubble burst in 2002 it was Californian leaders like Brobeck Phleger & Harrison and Cooley Godward that wielded the axe. In contrast, the East Coast establishment barely slowed, leaving only the notoriously un-hedged Shearman & Sterling to make substantive cuts (from which the firm has arguably yet to recover).
Step forward to today and the cuts have largely been at New York firms heavily reliant on structured finance. Finance law in the US has, for a generation, been about hyper-specialisation and product-line segregation, a notable contrast to London¹s favoured model of large, broad-church teams. As such, the firms to have made cuts like Cadwalader and Thacher Proffitt have been singularly exposed to a turbulent market, particularly in mortgage-backed securities.
In Europe it seems far more likely that the mainstream corporate and restructuring markets will decide whether there will be any substantive lay-offs during this downturn.
Nevertheless, the consensus is that structured finance will be flat on its back for six months at best. As one partner puts it: "SIVs are dead, conduits are in a coma. RMBSs? They¹re critical but not quite dead, and it¹s the same with CMBSs."
The same partner notes the absence of institutions ‘warehousing’ - the practice of buying up debt ahead of an asset-backed product launch, as evidence of how little is in the pipeline.
Sloane Poulton of Taylor Root notes that structured debt lawyers in London are being switched into relatively active areas like derivatives. There should also still be demand from smart firms that have been locked out of the finance recruitment market but now have the chance to pick up bargains.
But if a finance slump is, by itself, unlikely to lead to many lay-offs in London, the question is whether the spectre of job losses in Manhattan will torpedo US firms' wider hiring strategies in the UK.
CC could have further cause to celebrate yet.