Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
Tweet us @Fides_Search to let us know your thoughts.
1). The Collapse of Northern Rock: Ten years on
This week marked the ten year anniversary of the collapse of Northern Rock. Following the announcement of Bank of England intervention, leading to the first run on a British bank in 150 years, it was a sign of things to come and the start of a crisis the country is still recovering from.
Despite an estimated 1.2 trillion pounds being pledged to support the financial system, and the UK’s biggest banks slashing $3.6 trillion of assets, profitability remains low.
Of the large retail banks that survived the crisis, Barclays and RBS remain smaller than they were a decade ago, with the latter still being 71% state owned. All of the ‘big four’ are less profitable, as they comply with capital requirements alongside the payment of record-breaking regulatory fines. According to data compiled by Bloomberg, the average return on equity has plunged from 18.4 percent in 2007 to 4.5 percent today, way below the 10 percent ‘cost pf equity’ investors typically demand.
And the markets are yet to fully recover either. UK M&A volumes have also fallen drastically since 2007 when levels reached nearly $650bn, data from Thomson Reuters shows. So far this year UK M&A volumes have reached just $258bn – failing to break the $2bn mark last year – due to Brexit’s destabilising effect on the market.
As such, analysis this week in the press has been directed at the extent to which UK banking practices have changed, and the susceptibility of the sector should it face another crisis.
Although great progress has been made to curb irresponsible lending and rebuild banks capital buffers, concerns have been made about a return to more risker consumer lending practices, such as long interest-free periods on balance-transfer credit cards. Unsecured consumer credit has risen since 2010, with rates of growth returning to pre-crisis levels of about 10 per cent. Borrowing rose above £200bn in July for the first time since 2008, in a sign that banks are pushing more aggressively into unsecured lending to boost profits.
As the UK’s biggest banks struggle to grow and recover, one hopes that financial lessons of the past have been learnt one way or another.
2). International Growth: A&O’s Blueprint
The internationalisation of law firms is a given in today’s climate with firm’s taking different approaches to expansion. Each firm approaches this in their own way which will fit with their ambitions and the agreed outlook of their partnership. Some opting for the scale model and a ‘bigger is better’ approach through multiple mergers whilst others are implementing a more piecemeal strategy to develop their business in a more organic way. Today we look at the Magic Circle and Allen & Overy in particular as they look to maintain their place at the top table in the global legal marketplace.
In their recent interview with The Lawyer Andrew Ballheimer and Wim Dejonghe discussed the expansion the firm has gone through in recent years, opening 14 offices since 2010 evidencing their focus on the execution of their global strategy. Whilst their Magic Circle peers have seemingly struggled with finding the right balance between international growth or retrenchment, Allen & Overy have continued a smooth upward trajectory in their financial performance.
The firm seems to be realising a balance between international growth, strength in London and global integration and is clearly benefiting from it. With historically UK focused firms, the challenge has been diversifying revenue generation away from London to remove a hub and spoke model that can lead to integration and cross selling issues. If not managed well this process can also result in public tensions within the partnehsips and mass departures within international offices. Allen & Overy’s ability tospread income across the network is shown by the statistic that ‘just 38% of the firm’s total fee income was generated from its London office last year’ whilst their ability to integrate their practices and clients internationally is nicely evidenced by 74% of the firm’s revenue coming ‘ from matters involving two or more countries. Also an impressive ‘30% of turnover is derived from work involving five or more countries.’
Whilst these statistics cannot yet be assessed against competitors or other global firms, they do show a firm growing internationally and succeeding in cross-fertilising their clients and revenue to enhance integration which can only be praised in such a competitive and challenging industry. How Allen & Overy continues to develop their business will be seen in the coming years. What we can expect however, is that they will do so in a considered and strategic manner with a focus on maintaining and improving their services to clients globally through an integrated and cohesive business.
All firms have their own philosophy towards growth and the implementation of it, Allen & Overy simply provide an example that through their performance and numbers, seems to be working.
3). Movers & Shakers
Jan Jensen and Shoan Panahi join White & Case from Nordic firm Hannes Snellman.
BLP has strengthened its City practice with the hire of Freshfields Bruckhaus Deringer’s former Asia disputes head, Richard Chalk, and Vinson & Elkins arbitration partner George Burn. Meanwhile, Herbert Smith Freehills’ Thailand head of dispute resolution Gavin Margetson has joined the firms’ Singapore office.
Partners Clive Hopewell and Adam Carling have joined the team
Office openings & Closings
Mergers and Alliances