City partners have shrugged off their free market principles to support the UK Government’s historic £400bn bank rescue package that will see the state partially nationalise swathes of the
The latest Legal Week Big Question survey found that City lawyers are entirely in tune with the mood of the times — which has seen the UK Government rapidly shift towards policies that would have been unthinkable a few weeks ago — in the wake of prolonged market turmoil.
More than a quarter of respondents (27%) said the proposals announced last week to inject up to £50bn of public funds capital directly into banks were ‘very much’ justified, while a further 50% of respondents viewed such a stance as ‘justified’.
The radical policy of capital injections — which has been adopted by several G7 nations around the world and on Monday (13 October) led to the Royal Bank of
Furthermore, the Government announced that it will guarantee banks issuing medium term debt, potentially backing a further £250bn of bank borrowings as well as making £200bn available in liquidity to the market.
Allen & Overy (A&O) financial institutions partner Mark Wippell (pictured) told Legal Week: “The Government taking action is a good thing. We obviously have a financial crisis on our hands and the Government is taking aggressive steps in an attempt to bring it to an end.”
The package of measures also brought widespread support for the actions of the Labour Government, reversing a recent trend which had seen the profession’s support for Gordon Brown’s administration fading over the last 12 months.
Eighteen per cent of the partners responding to the survey rated the Government’s handling of the banking crisis since the collapse of Lehman Brothers last month as ‘excellent’. A further 30% viewed the Government’s response as ‘good’, while 39% saw it as ‘OK’. Only 13% viewed the Government’s recent handling negatively.
One partner at a top 25
The findings and comments in response to the Big Question survey underline the dramatic ideological shift in attitudes among the profession, mirroring a wider shift in the country to support the kind of state intervention reminiscent of the New Deal in
Unsurprisingly, most City lawyers believe the sustained turmoil and loss of confidence in the banking system will have a damaging impact on their own businesses. Forty-two percent of respondents said the recent events would be ‘damaging’ for law firms, with a further 14% seeing events as ‘very damaging’.
The crisis has so far generated a stream of work for top law firms on both sides of the
Linklaters finance partner David Ereira (pictured) commented: “The level of transactions will retract, credit will reduce and there will be less traditional lending work. Firms will have to adjust and look at how best to reallocate resource.”
A&O’s Wippell added: “In the short term, there will be an explosion of activity because everyone needs advice.
“The medium term is uncertain and there is certainly going to be a reduction in M&A transactions until valuations stabilise, funding is freed up and confidence returns.”
The Big Question poll provoked mixed views about whether the radical upheaval in the financial sector, which is expected to usher in more regulation to head off risky behaviour, would impact on the importance of banks as clients. Fifty-seven percent believed the role of banks would be unchanged, although 28% believed they would become less important clients to law firms.
“This is the beginning of a long haul to a new place for banks within the economy,” said Tim Plews, co-head of Clifford Chance’s
The crisis has also prompted expectations that law firms will now be more wary of tapping volatile outside capital under the Legal Services Act.
More than a third of partners (38%) said law firms would be much less likely to bring in outside investment, while a further 43% said it would have a minor negative impact.
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