Law firms under pressure from banks for ‘cheap resource’

Firms say banks ‘abusing’ position with growing call for secondees

Tensions are mounting at City law firms as banks press their legal advisers to provide
increasing numbers of secondees, it has emerged.

A number of partners at top 10 City firms claim banks are putting them under too much pressure to provide in-house legal teams with lawyers.

Firms are arguing the absence of junior lawyers from the office is losing them work. Equally, with larger numbers of secondees from different firms being used effectively as extensions of banks’ own legal teams owing to in-house redundancies and recruitment freezes, the benefits to ongoing relationships are less evident.

One partner at a major City firm said: “What banks have been doing is slightly abusing the panel relationships. If they are treating us as a source of cheap resource without seeing it as a symbiotic relationship, we have to balance opportunity costs with opportunity gains.”

Another added: "Law firms are feeling under considerable pressure to second lawyers to help in-house departments manage their workload, but this is not then giving revenue to law firms."

Such criticism comes as banks are also calling for more experienced secondees from advisers. At Barclays, Simmons & Simmons litigator Colin Passmore became the first partner to take on an in-house stint with the litigation team earlier this year, with the bank calling for more senior secondees. Morgan Stanley, meanwhile, is thought to be using secondees to carry out substantial amounts of its debt securities documentation.

Big finance firms such as Clifford Chance, Allen & Overy and Linklaters often have dozens of secondees with banks at any one time and for firms with fewer resources it can mean more pressure. Linklaters had 200 lawyers on secondment to clients last year – although this figure currently stands at 95.

Jeremy Edwards, Norton Rose's head of banking, said: "There have been more requests from the banks this year for secondees as many of them have cut back their legal departments. It is a natural counter-cyclical balance: when there is less work around, there is more associate time available for secondments and these can be a good way of keeping in touch with clients when the deal flow has slackened. I am not so sure how well that will work in this downturn for those law firms who have themselves cut back heavily on headcount."

Despite the criticism banks insist they will not be changing their stance. One in-house lawyer at Barclays stressed that secondments helped firms understand clients’ business better and therefore those firms committing staff would be more likely to be instructed.

Richard Hennity, head of legal at HSBC Holdings, said: “If you spend a large amount of money with a law firm, you are going to have more leverage to derive further value-add from them like secondments.”

Jonathan Peddie, director of litigation and special investigations at Barclays said: "Secondments let lawyers understand their clients' priorities and report back, with the result that the firm grows in knowledge and fine tunes its strategy, leaving it better placed for instructions. There is a clear correllation between commitment to the process and growth in business. Those who commit properly get the work, and those that don't, don't.

He added: "Those who complain it is taking advantage of the panel process are hiding behind an outdated, inflexible business model. Nothing exposes a lack of flexibility better than a recession."

Andrew Williams, EMEA GC at UBS said: "Sending us high quality secondees - preferably at senior associate level - continues to be one of the most valuable thing a law firm can do for us. We tend to use them mainly for maternity leave cover or when we are looking to expand into a new area which we don't have expertise in, with most staying between three months and a year.

"Although in some circumstances we will look to major relationship firms to send us secondees for free, we will generally cover the costs of their salaries and associated expenses."

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