Welcome back to the Fides Weekly Update. Read on for our analysis of the top legal and compliance new stories of the week.
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This week:
1.All you need to know about the cities Law firms (PEP & Financials)
In a week where multiple global law firms have announced their financials we are looking into their performance and which partners have experienced a happy or bleaker start to the year.
Hogan Lovells global performance and turnover (excluding the US) was up to £638m, this has brought PEP up overall to £879,000 from £698,000 an increase of 25%. These results surely help ease the burden of adding an additional £50m in capital, which was announced earlier this month.
Closer to home, Eversheds have consistently produced positive revenue results however have increased operating costs significantly, resulting in a drop in PEP from £410,000 to £386,000. The number of Partners at the firm grew from 296 to 323 while the number of legal advisers increased to 1,543 from 1,410 and administrative and support staff numbers rose to 1,097 from 941.
Dechert meanwhile also posted positive results with a 2.4% increase in revenue and 1.6% in PEP despite CEO Henry Nassau acknowledging the “challenges of 2016”. The real growth was the London office, despite the fluctuations in currency prices. Final PEP numbers came out at £2.03m despite other areas of the business suffering like non-equity partners and the US business remaining fairly flat.
Similarly to Hogan Lovells, Taylor Wessing Partners added a more modest £3.59m in capital this is in line with their move to become an all-equity Partnership. Turnover increased 5% to £126.65m whilst operating profit fell slightly from £49.99m to £49.85m whilst PEP increased slightly from £767,000 to £770,000.
Ashurst who experienced significant challenges within their partnership throughout 2016 whilst also investing heavily in their infrastructure, saw a significant drop in PEP to £567,000 representing a 24% decline. Despite this the firm grew from 2,651 to 2,722, although total fee earners fell from 1,399 to 1,368.
Weil Gotshal & Manges posted notable increases as revenue rose 9% while PEP jumped 22% to £2.5m. Lawyer headcount increased 1.8% to 1,083, while the number of equity partners at the firm dropped to from 164 to 161.
Despite the challenging environment for law firms globally these results provide some optimism for the year ahead as firms continue to develop their capabilities domestically and internationally, enabling their businesses to remain competitive and profitable in the current climate.
2. Trump considers Dodd-Frank repeal
Since his inauguration, Donald Trump has begun fulfilling many of his campaign promises. His administration is on a mission like no other before it, signing many executive orders, some controversial, as promised. Next on his agenda is one of the most significant pieces of regulation to be devised, the Dodd-Frank Wall Street Reform and Consumer Protection Act first implemented in 2010 in the aftermath of the 2008 financial crisis.
Trump is ordering a complete review, and has been contemplating since May 2016 that the act has been too severe on the banking sector, forcing banks to hold extraordinarily high cash reserves and stifling growth and innovation in an attempt to avoid another “too big to fail” scenario. As a successful businessman, who has relied heavily on many of these same banks to fund his vast and diverse portfolios of business, is it a surprise that he is considering repealing or even completely reforming the act?
The general consensus of the market is mixed, with most saying that Dodd-Frank has not fully achieved its original purpose, but on the other hand many would argue that it has been generally positive and certainly ‘done some good’. The opportunity for high risk strategies that could go wrong have been curbed and consumer protection has been tightened.
It’s also worth arguing that same lack of freedom for the banks has in some ways led to the exponential growth of the Fintech industry, which is now in itself a $7 billion sector. It has been able to capitalise on less regulatory supervision, low interest rates and the ability to utilise the latest technology to provide a level of service and efficiency traditional banks are unable to compete with.
Unsurprisingly, news of Trumps review caused shares to rally in London at a time when European banks are currently buckling under further regulatory pressures. Both administratively and economically MiFID II is causing headaches and is creating huge budget issues under strict timelines which are likely to be extended. Will the potential scaling back of regulation in the U.S force other regulators elsewhere to become more relaxed and stay competitive and if so would this lead us to be exposed in the future?
Where will this leave our compliance and regulatory industry? From our discussions, there is a mood that the size of these teams are bloated and of huge cost to the sector but have been necessary in protecting the banks from further failures. But these systemic risks have subsided as a positive compliance culture has been embraced.
The FCA’s approach since Martin Wheatley was forced to step down has been much more conservative but this is as much to do with the fact that the focus of the regulator has moved to the Asset Management sector and with MiFID II already delayed by a year the approach of Trump while radical could open up the opportunity for new ideas and regulatory strategy.