International law firms are hunkering down for the toughest period of trading in the City in recent memory but Charlotte Edmond finds that most are determined to stick it out

If ever there was a market to test the commitment of international firms to their London office, this would be it. Plummeting workloads and high operating costs have meant more so than ever the City is proving an expensive toehold.

Despite this, the majority of firms remain dedicated to their London practices, with Legal Week's annual international law firms in London survey showing a 17% increase in non-partner headcount at financial year-end, in a like-for-like comparison with 2008's results.

Headcount
The figures, which present a snapshot of 72 major non-UK headquartered firms in London at their financial year end, show several firms making major investments in their London practices since 2008, with Mayer Brown and White & Case among the biggest growers. However, the pair, which saw lawyer numbers increase by 95 and 66 respectively, have since announced sizable redundancy rounds, in common with a number of firms.

White & Case London office head Oliver Brettle comments: "Growth since last year and going forward will be slower, steady, measured growth. But it is important to see London not just as the capital of the UK, but the place where UK deals are done. You cannot underestimate the importance of English law as the law to govern major transactions and cross-border deals. Self-evidently, the place where you find the most UK lawyers is London and so firms will remain committed."

On the flipside, Reed Smith, Dechert and Shearman & Sterling are among several firms retrenching since 2008, all of which have seen a cut in lawyer headcount since last year.
While overall partner numbers have remained relatively static, a number of firms have seen sizable fluctuations since last year as the impact of transferring people around the network of offices starts to take effect. Crowell & Moring, Pillsbury Winthrop and Kirkland & Ellis have all grown their London outposts with Crowell seeing a 50% jump in partner count, growing to nine partners. Kirkland grew partner levels by more than a third with nine new partners in its office, while Pillsbury took on an extra three partners, growing to eight.

In contrast Chadbourne & Parke and Faegre & Benson are among several firms singled out for having dropped London partner numbers.

"London is the financial capital of the Anglo-Saxon world and I do not see that changing", says Cuatrecasas Goncalves Pereira London co-head Florentino Carreno. "It is the gateway into the European Union – that is certainly why we are here – and because of that the majority of firms will continue to invest here."

Hiring trends
With almost all City offices seeing falls in local profitability, hiring levels over the coming months are set to fall from this time last year. Three-quarters of firms responding are looking to hire in the next 12 months, compared to 86% this time last year. While the figure represents one of the lowest points since the survey was started, with a high of 96% in 2006, almost half of the firms are looking to grow by more than 10%. Of those looking to expand, the majority (51%) were looking at growth of around 0%-10%, while 35% were looking to increase headcount by 10%-20%.

A further 9% said that they would 'possibly' or 'probably' grow headcount over the coming year. However, a quarter of firms refrained from committing and did not answer the question at all.
Baker & McKenzie London managing partner Gary Senior said: "There is strong pressure to go international and to come in with a lateral partner here and a lateral there. If you want to build an international presence you need to be willing to hold your nerve and stick out the good with the bad and keep up investment levels."

Reed Smith is one of those firms looking to expand headcount by 10%-20%, following a year in which it made eight lateral partner hires in its City base. The office took on a three-lawyer trade and commodities team from Clyde & Co, including partner Robert Parson last month. In April, the firm recruited asset finance partner Siva Subramaniam, who also joined from Clydes as well as corporate partner Oliver s'Jacob from Gibson Dunn & Crutcher.

Reed Smith Europe and Middle East managing partner Roger Parker commented: "What we are trying to do is create a strong international business centred around what our most active clients need and that we can use to spread business around our network. Last year, for example, we did not have a funds team and now we do – and it is very good for attracting work from clients in the US."

The majority of firms are still aiming to expand their mainstream corporate and finance practices. However, in a sign of the times restructuring and litigation practices are set to see more attention than in previous years.

Brettle adds: "There is an argument that we will look back over the levels of 2005-08 as unusual growth and we will return to the levels of the 1990s. Certain practice areas are picking up now such as banking and projects, and that may be where people will recruit, but it will be a while before we return to the pace of before, if at all."

Offshore leader Conyers Dill is among those firms that are planning on launching a new practice area in the coming year, creating a Mauritius law hub from London. Meanwhile, Morrison & Foerster is planning on launching a restructuring practice. However, the majority of firms are sticking with what they know and are not planning on expanding their London coverage in the next 12 months.

Lateral hires
In addition to Reed Smith, other firms to have been active on the lateral partner front include Mayer Brown, which has taken on 10 partners over the year, and K&L Gates, which has taken on eight.

In July last year, K&L Gates recruited Neil Logan Green to its real estate practice from Eversheds. Meanwhile, in October Mayer Brown took on construction and engineering disputes partner Raid Abu-Manneh, while corporate partner Martin Mankabady joined from LG in July.
However, the firm recently suffered the loss of co-vice chair Paul Maher, who last month moved to set up a UK office for Miami-based firm Greenberg Traurig along with former Mayer Brown corporate partner Fiona Adams and former European environment head Cate Sharp.

Office openings… and closures
Greenberg Traurig is not the only firm to have set up shop in the City in the last year, despite the adverse conditions. Boston private equity leader Goodwin Procter secured its long-awaited City launch in October after taking on US-qualified partners Bob Asher and Brian Smith from now-defunct Heller Ehrman. The opening gives Goodwin its first office outside the US.
Meanwhile, Indian firm Fox Mandal Little opened doors at the end of 2008 and now has seven lawyers on the ground. The firm is also in expansion mode, looking to grow 30%-40% in the coming year.

Paul Weiss Rifkind Wharton & Garrison London office head Mark Bergman comments: "A London office is not just to service the UK, it is a window to EMEA. As in international firm you have to open in London not just for the sake of UK plc, but to improve your international spread. We are in a slightly different position to most US firms in London because we only practise US law. If you are doing work in Europe from London no one thinks you are too far away. If you are trying to do that work from New York, you are too far away."

The picture was not so rosy for Kilpatrick Stockton, which shut up shop in London in March after a steady stream of partner departures over recent years. Former office head Ken Boehner has since joined intellectual property specialist Bristows.

"London has always been a competitive market and not everyone is seeing the need to be here any longer," Paul Hastings Janofsky & Walker London managing partner Mark Eagan says. "It is not a question of trying to get bigger and bigger, but better and better. I suspect the large firms and the smaller representative offices will be OK – it is the ones inbetween that will struggle the most."

The merger question
But despite the downturn causing firms to review their strategy, it seems that few are prepared to make the investment to merge with a UK firm. The number of firms that would consider a merger has fallen sharply on last year, with 21% saying they would, or possibly would, be in the market for a tie-up. This compares to a figure of 45% last year. The number of firms that have outright rejected the idea has grown substantially, rising from 26% to 53% this year.

This year four firms – Bryan Cave; Chadbourne & Parke; Dorsey & Whittney; and K&L Gates – were the only ones to say they would consider a merger. A further 11 firms said they would 'possibly' look at merging.

Parker, who was part of legacy firm Richards Butler in 2006 before it merged with Reed Smith adds: "No merger is 100% perfect. We know that lawyers over-analyse, particularly groups of lawyers – it depends where you set your benchmark. If you decide you are anywhere approaching an 80% match I would say that was pretty good."

Whether it means cutting back in the short-term or taking advantage of some strong CVs on the market, it is clear that the majority of London's international firms are here for keeps.

As Bakers' Senior puts it: "I do not think the pattern for non-UK-based firms is very different to those firms based in the City. All firms, international and domestic are tightening their belts."

Main practice areas highlighted for expansion
Corporate 15%
Litigation 15%
Restructuring and
insolvency 8%
Finance & Banking 8%
Capital markets 5%
Private equity & funds 5%
Commercial 4%
IP/IT 4%
Regulatory 3%

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