Slaughters' role as Treasury bailout counsel marks growing appeal of trophy public work

Before M&A fell off a cliff, it is fair to say acting for the Government was not seen by most City law firms as particularly glamorous or lucrative. Many top London firms, until recently, went as far as to actively avoid Whitehall, citing low rates and conflict problems. This is in stark contrast to the US, where elite law firms routinely seek cutting-edge public work with scant regard for fee levels.

But with the recession taking hold of deal activity, details of Slaughter and May's £9.4m fee for work on the nationalisation of Northern Rock looks set to mark something of a tipping point in adviser attitudes. Figures detailed in last month's report from the National Audit Office (NAO) show Slaughters made £6.1m in the first six months of instruction by the Treasury on the bank's nationalisation, with a further £3.3m coming since March 2008.

Add in the other advice Slaughters has provided the Government on subsequent bank bailouts, recapitalisations and related litigation – already in excess of £20m in fees – and it is not a relationship to be sniffed at in any point of the market cycle – let alone in the depths of a downturn.

It is also one of only a handful of public examples of a deal where legal fees have outstripped those of the banks, with the magic circle firm picking up nearly twice as much as the hardly-inexpensive Goldman Sachs, the Treasury's financial adviser.

In part, this reflects the novelty and complexity of the deal, but perhaps more so it shows the advantage, in this instance, of law firms' hourly rates over banks' looser charging model.

In contrast, Slaughters settled on an hourly rate with the Treasury. This was offered on a preferential rate at a discount to its typical rates, though there was a 15% uplift agreed on the basis of the complexity and round-the-clock availability required.

Yet the level of Slaughters' fees was by no means excessive – at least against the yardstick of its City peers. Slaughters was billing about £1m per month at its height on Northern Rock for a team of partners and lawyers led by Charles Randell. Partners across the City suggest that figure is paltry compared to what could be earned from a public company on a comparable mandate; but it's not always about money. Slaughters has clearly gained positioning and experience with its tradition of handling flagship work for the Government, a role it played most famously during the privatisations of the 1980s. It is a role the firm has largely had to itself, but it appears set to face a little more competition with Allen & Overy, Linklaters and Freshfields Bruckhaus Deringer winning places in 2007 on the Government's Catalist panel. With headline-grabbing work now having a public dimension, the lure of the public sector will likely grow.

Still, one thing is clear: with intense public interest in how the Government is spending money to bail out banks, law firms will have to get used to being thrust into the spotlight, as Slaughters has been on Northern Rock. It is a position that attention-shy City firms are culturally ill-equipped to handle, but it goes with the package – so Whitehall hopefuls had better toughen up and get accustomed to a little democracy.

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