Lawyers in the north of England are talking down the effect of the credit crunch on their practices this year. Are they delusional or will they be proved correct in their predictions? Nick Hilborne talks to the region’s managing partners
The credit crunch has apparently done little, so far, to change law firms’ fortunes — or so they would have us believe. But it has noticeably changed the mood among lawyers based in the north of England. Most managing partners, while remaining cautiously optimistic, will admit to being concerned about what happens after the end of this financial year. DLA Piper Sheffield managing partner Stephen Sly sits with the optimists on the effects of the credit crunch: “If we are not careful we will talk ourselves into a recession,” he says. “What is happening is a necessary and overdue adjustment to an overheated market.”
Manchester’s Ian Austin, managing partner of Halliwells, displays typical northern pragmatism, saying: “I am not a pessimist, but I am a realist. The factors that were prevalent during the downturns in the early 1990s and 2001 are prevalent now. Let’s wait and see what happens.”
Setting the crystal ball to one side, lawyers in the northeast have more immediate worries — for the thousands of people working for Northern Rock. Robin Bloom (pictured left) is senior partner of Dickinson Dees, Newcastle’s biggest law firm with 79 partners. “You cannot be unaware of the impact of what has been going on at Northern Rock,” he says. “There are five to six thousand jobs there and people are very concerned at what the longer term could hold.”
The firm has indirectly seen the fallout from the Rock disaster, laying off 17 paralegals and administrative staff from its re-mortgage division late last year. Clients of the division include high street banks — including Northern Rock. Bloom told Legal Week that the downturn in re-mortgage activity meant the firm had received less work from Northern Rock but stressed that other work for the troubled lender remained strong. He says the firm will press ahead with plans to convert the conveyancing, remortgage, repossession and Home Information Packs business into a wholly-owned subsidiary under a separate brand name.
Jim Dias, senior partner of Newcastle general practice Sintons, agrees. “Northern Rock is a very big business and a charitable institution, and there is a lot of loyalty to it in this city. We want it to continue and flourish, but we will have to wait and see.”
Whatever the future holds, both firms say they are thriving. “It has been a very, very buoyant last quarter for us,” Bloom says. “The overall picture is one of substantial growth. The next three months will see activity levels holding up.”
The firm is set to complete deals worth more than £7bn by the end of this financial year, with fee income rising from £56m to more than £60m.
He says the firm’s York office, which opened early last year following the merger with local firm Philip Ashworth & Co, has trebled in size in only 10 months.
“There has been a bit less activity in commercial property,” he reports. “Even so, some investors will see good opportunities in the current market and those who are cash-rich will come back in.”
Meanwhile, 20-partner Sintons is equally bullish, considering the column inches dedicated to dire economic forecasts. “We have been very busy this financial year, especially in commercial property and corporate,” Dias says. “Fee income is up by more than 20%. There is no sign at the moment that this quarter will be any less busy than the last. I know a lot of deals are planned, which will take us through to April. We remain optimistic.”
For Ward Hadaway, a Newcastle firm with 54 partners, 2008 will be a year of dramatic expansion. Managing partner Jamie Martin was awarded an OBE in the New Year Honours List for services to business in the northeast. He says the firm will open a new office this year, either in Leeds or Manchester.
“We have grown significantly from a single site and there are concerns over whether we can continue to grow in this way,” he says. “We want to create a firm with offices solely in the commercial centres of the north.”
Martin says the firm is on course to see fee income rise this financial year to £30m, up from £25m the previous year. “We have been extremely busy recently but, like everyone else, we are not complacent.”
The firm advised Tees, Esk and Wear Valleys NHS Trust last month on a pioneering £74m private finance initiative to replace St Luke’s Hospital on Teesside.
Like Dickinson Dees, the firm continues to do general commercial work for Northern Rock but both firms declined to discuss the details.
Unlike expansionary Ward Hadaway, Stephen McNicol, managing partner of Newcastle commercial practice Muckle, says the firm’s 20 partners have no plans to expand outside the region. “We have thought long and hard about it but we want to stay absolutely committed to the northeast. We are recruiting very good people and equally good clients.”
Further south in Sheffield, DLA Piper’s Sly says his firm is better placed for the first quarter of 2008 than it was at this time last year. “Corporate is still very busy and property litigation in particular has picked up in the last month.”
Sly says one of the highlights from the end of last year was advising aerospace parts company Firth Rixson on its £945m acquisition by private equity group Oak Hill Capital Partners.
DLA Piper announced this month that it was raising salaries for newly-qualified solicitors in the north to £41,000, £1,000 more than rivals Addleshaw Goddard and Hammonds. “If we think back to the last downturn in the early 1990s, this firm has changed dramatically,” Sly says. “We now enjoy the benefits of being an international practice, with the Dubai office providing significant work along with our European offices, especially in Germany and Italy, where growth has been spectacular. In the UK we have a significant public sector practice, which was not there in the 1990s.”
Simon Miller pictured right), Leeds managing partner of national firm Hammonds, said the immediate impact of the credit crunch was on the giant transactions in London.
“Nobody knows quite what will happen but I believe there is every chance that activity levels here will hold up,” he says. “Our corporate department is having a record year.”
Miller said one of the biggest deals from the last quarter was acting for the management team in its £255m buy-out of Ainscough Crane Hire, the largest crane hire service in the UK.
“We have always had a strong dispute practice at Hammonds and, while we have been able to do our numbers for the last two years, it has generally been quiet because of the corporate boom,” he says. “There is now more dispute work around. Activity levels are also high in property.”
Miller is delighted that Hammonds won a place this month on Royal Mail’s three-firm property panel.
Nigel McLea, managing partner of Pinsent Masons in Leeds, said his firm has also been inundated with work. “Corporate had a stonking period to the end of the year. Everyone expects 2008 to be quieter, but finance for the right sort of deals is not yet proving to be a problem. Commercial property is a long-term game. It can take the bigger schemes five to 10 years to get through the planning process, so you have to keep trudging on.”
McLea believes 2008 could be the year that a new village on the Curborough airport site, near Lichfield in the West Midlands, finally gets off the drawing board. Pinsents is advising a consortium made up of Redrow Homes, house-builder Gleeson, Hallam Land Management and The Banks Group.
Halliwells is the biggest firm in the northwest, with 95 partners in Manchester and 23 in Liverpool. The firm moved into brand new offices in Manchester’s Spinningfields development last month. The development, which has been described as Manchester’s Canary Wharf, includes the striking Civil Justice Centre, which opened its doors in October at a cost of £160m.
Halliwells’ Austin is more than pleased that his firm no longer has to operate out of five separate buildings. “We are now in some of the highest-quality office space in northern Europe,” he says. “Spinningfields is completely unlike any other business district in the northwest.”
Austin is cautious about the UK’s economic prospects, noting that the speed at which deals complete is slowing down as banks become more cautious. The firm’s corporate department recently advised northwest transport and logistics firm Eddie Stobart on its £138m takeover of property fund Westbury. Its property team advised developer Extreme Cool on Manchester’s new £31m indoor ski centre.
Tim Hamilton, head of corporate at Addleshaw Goddard’s Manchester office, says that although the firm’s property practice is experiencing slightly reduced volumes of work, the value of corporate deals is increasing: the value of deals handled by his department in the last calendar year hit £1.6bn.
“Mid-market corporate deals are unlikely to be as influenced by the credit crunch as the top end,” he predicts. “Some companies and private equity houses see the situation as an opportunity to buy businesses at a more sensible price.” Hamilton says the firm as a whole is hoping to push the previous financial year’s fee income of £177m to £200m by April.
The credit crunch has one important silver lining for northern firms. For the past few years they have struggled to recruit enough good corporate and commercial property lawyers. “Business has been so good in London that firms have found it very difficult to recruit to northern offices,” James Batt, director of Manchester-based consultants BCL Legal, says. “People postponed relocations because they were making so much money. “Now firms here are positioning themselves to recruit lawyers coming out of the City, either because they have roots in the north or for the work-life balance.”
With both Pinsents and Hammonds looking to expand their Manchester offices and top four Scottish firm McGrigors, which opened in the city this month, recruiting in property and projects, there is demand for lawyers.
Tony Brooke, co-founder of Leeds-based recruitment consultants Florit Brooke, is equally optimistic. “Our anticipation is that there will still be a lot of recruiting going on; there is plenty of business out there for lawyers. Insolvency and restructuring will get busier. We are also expecting a rise in demand for in-house lawyers as companies look to keep costs tight.”
Brooke says law firms have learnt lessons from the recession of the early 1990s. “I am not expecting them to make property lawyers redundant,” he says. “There is still demand for them and work needing to be done. When firms cut back on property lawyers in the early 1990s, those that toughed it out and were not particularly brutal might have looked a bit flabby, but they were the ones able to take on work when things came back again.”
Graham Manley, partner at consultants Rushton Bond in Leeds, agrees that the credit crunch has currently made very little impact on law firms in the north. “Private equity work seems to have dried up, but corporate finance is very busy as people push deals through before the next budget.”
Northern lawyers are taking a characteristically level-headed attitude to uncertainty created by the credit crunch. “Nobody is holding their breath, thinking that Armageddon is coming,” jokes Manley. Or as
Hammonds’ Miller puts it: “This is a good time to be where we are — in the north.”
