Weekly Update – 4th March 2016

Slater & Gordon announces Restructuring Plan following £493m six month loss

Slater & Gordon (S&G) is going to conduct a major restructuring of its UK operation after announcing an A$958m (£493m) loss for the six months ending 31 December 2015. Facing debt of A$741m, lenders have given the firm until the end of April to present a new plan for reorganising the business, with the likelihood that a number of offices in the UK will close. The first listed law firm in the world, Slater & Gordon has now lost more than 95% of its value since April 2015, with shares dropping a further 30% after the announcement was made on Monday.

So what happened?

The staggering loss, amounting to three times the sum of the firm’s profits, was primarily attributed to an A$876.5m impairment of intangible assets caused by a write-down of goodwill. This was a result of S&G’s acquisition of the insurance outsourcer Quindell’s professional services arm for £700m in May 2015.

Controversy surrounding the deal concerning Quindell’s valuation and accountancy practices was quickly justified with the launch of an initial FCA and then SFO investigation following the admission that pervious management had overstated the division’s profits by more than £300m in 2014. Due diligence for the acquisition, which was based on a ‘bottom up’ review of case files, did not consider Quindell’s accounting policies as fundamental to decision making compared to the profits it was expected to generate, although S&C assured investors that it was aware of the mistakes in the accounts ahead of the deal.

The announcement also revealed a sharp decline in UK business performance, responsible for 45% of the firm’s revenue. Having already entered into consultations in January to close two of its UK offices, personal injury (PI) law revenue was ‘materially weaker than expected’ following shock government proposals to ban claims for general damages in ‘low value’ whiplash cases made in the Autumn statement. This has the potential to severely affect profits from fast-track road accident claims, upon which S&G now account for most of their UK earnings.

So what next?

The future of the firm now depends on S&G’s lenders, and whether or not they are willing to renegotiate the terms of its debts. With the firm submitting a restructure proposal to its banking syndicate at the end of the month, any amendments to its debt facility must be made by the end of April or the firm faces the nearly impossible task to repay $800 million in loan facilities by next year.

Until recently a highly successful firm, expanding significantly in Australia before coming to Britain, the £493m half yearly loss demonstrates how quickly a law firm’s fortune can turn in the face of a poor business decision and unfavourable market conditions. In acquiring Quindell, S&G bought a business valued (at the time) more than its Australian and UK operations combined, that doubled staff numbers overnight and caused a vast amount of reputational damage to the firm. To add flame to the fire, planned changes by the government to limit personal injury claims continues to undermine the business S&G so heavily relies upon in the UK.

Hopefully the firm can reach an agreement with investors by the end of March to rescue the firm and its 4,000 UK employees.


Barclays face displeased shareholders

Barclays share prices dropped by more than 10 per cent earlier this week after the bank reported a drop in full-year profits and a subsequent 54 per cent dividend cut.

The bank’s annual profits fell by two per cent to £5.4bn for 2015 as well as disclosing a further £1.45bn provision for mis-selling. This year’s results indicates that Barclays have now failed to generate cumulative profit over the past four years, which has brought about chief executive Jes Staley’s decision to accelerate their major restructuring plans.

The plan involves selling off a large amount of their 62.3% stake in Barclays Africa Group, something Staley had intended to do when he stepped into the role, as well as splitting the company into two divisions Barclays UK and Barclays Corporate International, which will be in line with the industry’s new ring fencing regulations. It is apparent that the main aim of Barclays’ restructuring is to eliminate any under-performing areas, i.e. many of its non-core assets, and focus on running their most healthy operations concentrated in the UK and US, which will transform it from a global bank into a transatlantic bank, according to Staley.

In order to carry out such plans, however, the bank have needed to strengthen capital reserves through dividend cuts. The bank announced the final dividend for 2015 of 3.5p, stating that this would fall to 3p for 2016 and 2017. This came as a shock after chairman John McFarlane made a pledge last June that the bank’s share price would double in three years. Cutting dividends to offset drastic restructuring costs is becoming commonplace for Barclays and is creating a high level of uncertainty amongst the shareholders.

McFarlane alleged that “a high and progressive dividend will in future need to make up a significant portion of our annual total shareholder return”, but there have been no signs yet as to whether the bank will be making consistent and stable returns anytime soon. Despite strong efforts to recapitalise the business, investors remain wary of the banks strategic targets.

With the continued regulatory pressures and evolving strategy at Barclays it will be interesting to see how the coming 12 months progresses for the bank. As Fides have noted in recent blogs and our regulatory article, all financial institutions are having to face up to this new world environment and deal with significant profit challenges through more robust legal and compliance regimes. As such how the bank utilises its legal and compliance function along with external counsel in this continued period of change and uncertainty will be interesting to observe and analyse.


Movers and Shakers


Slaughters appoints new M&A head
Corporate finance partner Roland Turnhill will replace Steve Cooke as the firm’s head of M&A when he becomes senior partner

DLA choose new global co-chair
Juan Picon will become the firm’s global co-chair as Sir Nigel Knowles steps down Moves


Mayer Brown strengthens London Finance Practice
Mayer Brown has appointed Kieron Dwyer, ex-head of international energy and natural resources at Wragge Lawrence Graham, as a new Finance partner in London

Eversheds grows corporate finance team
Eversheds has enhanced its corporate team with the appointment of partner Sebastian Orton who joins the firm from Jones Day.

Linklaters appoints UK trusts lawyer
Peter Golden has been hired from Forsters to lead Linklaters’ trusts practice

Clifford Chance adds to its growing white collar and regulatory defence team in the U.S.
Clifford Chance have hired Daniel Silver, Deputy Chief of the Criminal Division in the United States Attorney’s Office for the Eastern District of New York, into the firm’s Americas Litigation and Dispute Resolution practice

Mayer Brown expands regulatory practice
Former head of the FCA’s enforcement and market oversight division Guy Wilkes will join Mayer Brown as a partner in their financial and regulatory enforcement practice DLA Piper bolsters investment funds team

DLA Piper bolsters investment funds team
DLA Piper appoint new London head of investment funds Andrew Wylie, joining from Nabarro, where he served as head of alternative investment fundsTaylor Wessing hires venture capital expert

Taylor Wessing hires venture capital expert
Angus Miln has joined Taylor Wessing in their corporate technology team. He previously worked at Bird & Bird and led their Venture Capital practice

Eversheds expands in Munich
Competition partner Martin Bechtold joins Eversheds’ Munich office as their Head of Competition for Germany. He has held previous positions at Clifford Chance, Allen & Overy and King & Wood Mallesons

Jones Day lose London energy head
Energy and corporate partner Paul Exley is to join Baker Botts in their UK energy practiceMorgan Lewis bolster antitrust and competition practice

Morgan Lewis bolster antitrust and competition practice
London partner Omar Shah has joined Morgan Lewis & Bockius from Latham & Watkins to their antitrust and competition practice

BLP strengthen German real estate offering
Dentons counsel Boris Strauch has been hired by Berwin Leighton Paisner as a real estate and infrastructure partner in their Frankfurt office

Jones Day gain energy duo in Beijing
Partners Dirk Walker and Dina Yin have exited King & Wood Mallesons to join Jones Day’s Beijing office

Kirkland loses further partner in London
Capital markets partner Andrew Hagan will join Freshfields Bruckhaus Deringer, alongside former Kirkland partner Ward McKimmTravers Smith add to Restructuring & Insolvency practice

Travers Smith add to Restructuring & Insolvency practice
Former K&L Gates partner Edward Smith will join Travers Smith as a Restructuring & Insolvency partner

Sidley sets up PE team in the City
Sidley Austin has taken six private equity partners from Kirkland & Ellis’ London office to set up a private equity team. The partners are Christian Iwasko, Erik Dahl, Fatema Orjela, Bryan Robson, Sava Savov and Oliver Currall

Office closings

Vinson & Elkins consolidate in the Middle East
Vinson & Elkins will close down their Abu Dhabi office and transfer their offering to their Dubai and Riyadh offices.


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