Turmoil jades lawyers’ view of bankers

The financial crisis and ‘unreasonable’ panel reviews have eroded lawyers’ traditional support for bankers but most believe banks will remain key clients. Emma Sadowski reports

City partners remain ambivalent about the influence of the banking sector on the legal profession, with many lawyers’ view of bankers being affected by the financial crisis.

The latest Legal Week Big Question survey shows that partners are divided about both how the banking sector should be regulated and the influence of banks on law firms.

Just over half (51%) of respondents to the survey were somewhat sympathetic to Financial Services Authority chairman Lord Turner’s recent call for a debate about the role of banks in society.

However, while 10% of respondent felt strongly that banks need to be reined in, almost twice as may (19%) argued that banking drives the City and, as such, should be left alone.

The same division was highlighted once again when asked about bonus policies at banks. While nearly one-fifth (19%) of the more than 100 partner respondents believed regulators should curb controversial bank bonuses given that the banking system now has so much support from taxpayers, and a further 21.5% agreed to a considerable extent, a greater percentage (60%) have only limited  support for such curbs or no support at all.

Slaughter and May head of financial institutions Ruth Fox commented: “It is entirely legitimate for bonus policies to be looked at for risk management purposes. There is, though, a difficult balance to be struck between constraints which might achieve the required regulatory outcome at an institutional level, and rigid policies aimed at controlling individual bonuses. It is not yet clear where governments will come
out on this as a political matter.”

There was more support from respondents for suggestions that regulators should force banks to hold higher capital reserves, with around two-thirds of respondents agreeing either ‘very much’ or ‘to a considerable extent’ that this should happen. 

More than a third of respondents admitted that the financial crisis had made them feel either ‘very’ or ‘considerably’ more negative towards the banking sector, with a further 40% conceding this was true to a limited degree.

However, 22% said their feelings had not changed, with a further 2% going as far as claiming that bankers had been made ‘scapegoats’.

Despite the problems in the sector, few (just over 21%) believe banks will become any less important to law firms as clients, with some arguing the opposite is likely to be true given the increase in regulation.

An even smaller percentage of respondents (18%) believed that banks’ transformation since the 1980s into the most lucrative and influential clients of large law firms had had a negative impact on law firms, with nearly one-third (29%) arguing that it has generally had a positive impact.

Nevertheless, 49% said banks had been a ‘mixed’ influence on the legal profession. However, despite their empathy with banks, not all partners responding to the survey were so sympathetic that they thought it reasonable for firms to share banks’ pain by agreeing to fee discounts, or concessions such as higher numbers of secondees.

While 22% felt discounts and concessions were either ‘very’ or ‘considerably’ reasonable, just over 37% said they had mixed feelings, 25% said banks were not being reasonable, with a further 15% disagreeing entirely and claiming that financial institutions were being unreasonable.

Freshfields Bruckhaus Deringer financial institutions head Michael Raffan commented: “Increased regulation will provide a lot of scope for law firms to provide advice, so banks continue to be important clients. Banks are indeed cutting costs across the board and we have to be sensitive and understanding about the position of the client.”

“There has been an impact on the economy on a whole. The downturn has affected clients across the board,” said White & Case London banking partner Carmen Reynolds.

She added: “Law firms will go where their clients go. Finance practices will not disappear, there will be more claims involving financial institutions and the banks may start to refocus to some extent and become active in other areas. They will still play an important role for law firms.”