Well, it had a good run, but the multi-strand finance model developed by City law firms over the last 20 years is surely in need of a revision now the industry it serves is set for such seismic change.
But judged by this week’s analysis, there still seems to be some denial. Yes, there is much talk of flexibility and retraining. We can also expect some strategic rebranding. Leveraged finance partners will surely soon be restyling themselves as the more neutral-sounding acquisition finance. Or how about growth finance? But it is hard to escape the feeling this is a bit superficial.
Let’s put aside the more hyperbolic obituaries being currently written for finance — and Linklaters’ John Tucker is right to observe that reports of the death of securitisation are premature. But there is plainly going to be less structured and leveraged finance work for a good while. And if your firm has 10 partners focused on securitisation and the market will only support five, you’ve got a problem. The bottom line is City firms are running finance practices that are probably a little too large for the current market and are certainly out of balance with where the work is.
Part of the problem is that there are contradictory forces at work, as can be seen from the related debate on commoditisation. As one senior general counsel at a leading bank observed recently, law firms will be asked by hard-pressed banking clients to use outsourcing and offshoring to cut costs. Yet there is also much talk of back to basic banking, a more partner led-service and more bespoke documentation. The only way this contradiction could be resolved is if clients and lawyers have a mature debate about what areas can be sensibly commoditised. Then law firms could outsource such work or resource with a model more similar to the volume divisions used by national law firms.
On a wider level, City finance practices should take this chance to update the practice model, which has built up some imbalances of its own. The multi-strand finance approach meant the usual suspects acted for all the usual suspects. With banking set for fundamental change, law firms might want to consider what kind of institutions they want to target rather than trying to be all things to all men. There will be major differences in servicing the needs of the new breed of more heavily-capitalised universal banks and, say, the kind of risk-taking institutions and advisory boutiques that will fill places left by banks.
With the rigid hierarchy of the finance in flux there will be a rare opportunity for nimble law firms. And the good news is that you won’t have to be a 500-lawyer practice to excel.
See Analysis: Banking on change for more.
